Understanding the Rise in Corporate Cash : Precautionary Savings or Foreign Taxes

What has driven the dramatic rise in U.S. corporate cash? Using non-public data, we show that the run-up is not uniform across firms and is greatest in the foreign subsidiaries of multinational firms. Standard precautionary motives explain only domestic cash holdings, not the burgeoning foreign cash balances. Falling foreign tax rates, coupled with relaxed restrictions on income shifting, are the root of the changing foreign cash patterns. IP intensive firms have the greatest ability to shift income to low tax jurisdictions, and their foreign subsidiaries are where we observe the largest accumulations of cash