The change of tax system between worldwide taxation and territorial taxation is a significant reform of foreign earning taxation. Various G7 countries follow suit to make the legislative change on tax system. I evaluate overall impact of these legislations by examining the change in firm value for multinational companies (MNCs). Using a staggered difference-in-differences research design, I find an increase in firm value after countries changed from worldwide to territorial tax system. I also find collaborative evidence that there is a decrease in cash holdings in the same period, which reflects an increase in the efficiency of allocating internal funds within an MNC. The increase in firm value is greater for firms headquartered in UK and Japan. Collectively, these results suggest that...[ Read more ]

The change of tax system between worldwide taxation and territorial taxation is a significant reform of foreign earning taxation. Various G7 countries follow suit to make the legislative change on tax system. I evaluate overall impact of these legislations by examining the change in firm value for multinational companies (MNCs). Using a staggered difference-in-differences research design, I find an increase in firm value after countries changed from worldwide to territorial tax system. I also find collaborative evidence that there is a decrease in cash holdings in the same period, which reflects an increase in the efficiency of allocating internal funds within an MNC. The increase in firm value is greater for firms headquartered in UK and Japan. Collectively, these results suggest that MNCs benefit from the tax system change through reduced repatriation costs and increased efficiency in internal funds allocation.