The Impact of Controlled Foreign Company Rules on Corporate Stock Price, Investment Decision, and Profit Reallocation
Chia-Wen Chang/Department of Accounting, Tamkang University
You-Zi Lin/PwC Taiwan
Hsuan-Pin Wang/Department of Public Finance and Tax Administration, National Taipei University of Business
Abstract
This study investigates the impact of the Controlled Foreign Corporation (CFC) rules on stock returns, foreign investment decisions, and profit reallocation. The empirical results indicate that firms with lower tendencies to repatriate foreign earnings and greater tax benefits exhibit more negative market reactions on event dates related to the implementation of the CFC rules. Furthermore, the study finds that firms with larger tax benefits tend to reduce their investments and profits in controlled foreign corporations in the year preceding and during the implementation of the CFC rules. These findings suggest that the propensity to repatriate foreign dividends and cross- border tax differentials are key factors influencing firms’ foreign investment strategies and profit allocation decisions.
Keywords
Controlled Foreign Company RulesControlled Foreign CorporationInvestment DecisionProfit Reallocation
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