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U.S. Corporations' Repatriation of Offshore Profits: Evidence from 2018

52 points by myroon5 5y ago

JohnJamesRambo 5y ago
“The analysis so far suggests that the strongest effect of repatriation was on share buybacks.” Great.
- spaetzleesser 5y ago
  Share buybacks and the rising valuation of of companies and real estate seems to make it pretty clear that big corporations and a lot of high wealth people have more money than they can invest into productive things like innovation and instead have to drive up the price of already existing assets.
  - netizen-936824 5y ago
    Or that they would rather take the easy method to multiply their wealth instead of the hard work method? Doing nothing is always easier than building something
  - s1artibartfast 5y ago
    The purpose of public stock is pay out profit to shareholders. Buybacks are a method of achieving this. Infinite growth is a joke
- refurb 5y ago
  If I were a shareholder I'd be happy! Seems like people get upset about decisions like this because they don't understand how these actions work.
  - tata71 5y ago
    What if you were a long-term shareholder? The soon-extinct investor.
    - toast0 5y ago
      Not sure what the term has to do with it. This is money the company doesn't know what to do with (otherwise they would have paid the tax consequences and used it as needed/desired), but now that there aren't tax consequences to repatriate it and return it to shareholders, they're returning it to shareholders. Maybe some would prefer a dividend rather than a buyback; but ignoring taxes, they're equivalent in terms of value, and I can't ignore taxes. A dividend is a taxable event and a buyback isn't. I'd rather defer the taxes as much as possible.
      - youeseh 5y ago
        It seems to me that buybacks reward those who've held the stock so far but want to exit their position, and managers who want a bigger bonus short-term. In contrast, dividends reward investors who want to remain invested, but I don't know what incentive management would have unless they too are shareholders.
        toast0 5y ago
        If I receive a dividend and don't use it to buy more shares, now I'm less invested in that stock. And I've got to pay tax. If the company buys other people's shares, now I own (very marginally) more of the company. I agree with your management incentives, although RSUs and options contracts can adjust for dividends.
  - JohnJamesRambo 5y ago
    When everyone does it, you are just getting a market built on nothing that will fall even harder when times get tough. The CEO regularly cashes out their stock and the public and pensions get left holding the bag of empty pumped stock. This will happen repeatedly in the next decade.
b9a2cab5 5y ago
> Balance of payments data show that U.S. firms repatriated $777 billion in 2018, roughly 78 percent of the estimated stock as of end-2017 of offshore cash holdings This is good for the U.S. economy compared to leaving it overseas. Even if it goes into share buybacks, higher asset prices mean businesses can afford to raise capital more cheaply and asset holders (retirees) gain an influx of cash. There's no real reason offshore cash holders would invest their excess cash. If they could do so profitably and sustainably then they would've sold bonds at insanely low rates already to fund those projects. Creating more jobs is not as simple as tossing more money at the problem.
bigtones 5y ago
Share buybacks increase the company share price because they decrease the pool of available shares. Corporate Executives often derive a significant percentage of their total bonus earnings when the share price goes up, so they have a huge incentive to spend the money they repatriated on share buybacks to line their own pockets via large bonuses.
- roenxi 5y ago
  Share buybacks also decrease the company share price because the company has less money after the buyback.
  - chii 5y ago
    which is why share buy backs and dividend payments are the exact same thing (except for the tax implications).
  - quickthrowman 5y ago
    > Share buybacks also decrease the company share price Share buybacks reduce shareholders’ equity and the book value of a company since cash is spent but no asset is gained to offset it. It also raises EPS, since the earnings don’t change but the number of shares (denominator) is lower. This doesn’t necessarily translate into a lower price per share, the supply of shares is reduced and the company generally buys their shares back on the open market, and the volume of their buying is substantial.
- bitshiftfaced 5y ago
  Isn't there a very simple fix for that? Just tie the bonus to market cap.
  - adventured 5y ago
    Tie it to a combination of things, including sales and operating income growth, not just market cap (which can be artificially juiced by macro market circumstances floating the boat of mediocre companies).
endisneigh 5y ago
Say what you will about China, but it's really interesting seeing the huge contrast in the relationships both countries have with their large corporations. The USA does put effort to curb these types of efforts, but not enough imho. I'm no historian, but I feel like there was a point where the USA just decided to throw its hands up in trying to regulate big companies. I wonder what needs to happen for the political tide to change.
- seibelj 5y ago
  China is a corrupt authoritarian dictatorship. They are not someone that countries with the rule of law should try to emulate. I recommend this book if you want an insider’s view of how China really operates: Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China https://www.amazon.com/dp/1982156155/ref=cm_sw_r_cp_api_glt_fabc_YZQK8GJE3PAE0KFCHT1T https://www.amazon.com/dp/1982156155/ref=cm_sw_r_cp_api_glt_...
  - mewbear3 5y ago
    Given the rapid development of China, I think this phase of corruption would be gone relatively quick compared to the same phase in US history. Xi Jinping also started a campaign for new type of state and business relationship https://blogs.lse.ac.uk/cff/2020/11/23/state-business-relations-under-xi-what-has-and-hasnt-changed-and-what-are-the-implications/ https://blogs.lse.ac.uk/cff/2020/11/23/state-business-relati... http://www.ecns.cn/m/2016/03-06/201698.shtml http://www.ecns.cn/m/2016/03-06/201698.shtml
  - pksebben 5y ago
    To say that we operate on "the rule of law" is a little silly at this point in history, isn't it? We have corruption just as bad if not worse, only in the US we've legitimized more of it and driven it further under the proverbial rug. Am I about to move to China? No. But let's not climb atop such a shaky pedestal.
    - seibelj 5y ago
      To truly think that the rule of law in America and China are even remotely close, and that the average citizen is equally treated by the law in each country, is so absurd that you must be living in some sort of politics bubble, or simply have zero idea of how these country’s legal and political systems operate.

52 points by myroon5 5y ago

JohnJamesRambo 5y ago

“The analysis so far suggests that the strongest effect of repatriation was on share buybacks.” Great.

spaetzleesser 5y ago
Share buybacks and the rising valuation of of companies and real estate seems to make it pretty clear that big corporations and a lot of high wealth people have more money than they can invest into productive things like innovation and instead have to drive up the price of already existing assets.
- netizen-936824 5y ago
  Or that they would rather take the easy method to multiply their wealth instead of the hard work method? Doing nothing is always easier than building something
- s1artibartfast 5y ago
  The purpose of public stock is pay out profit to shareholders. Buybacks are a method of achieving this. Infinite growth is a joke
refurb 5y ago
If I were a shareholder I'd be happy! Seems like people get upset about decisions like this because they don't understand how these actions work.
- tata71 5y ago
  What if you were a long-term shareholder? The soon-extinct investor.
  - toast0 5y ago
    Not sure what the term has to do with it. This is money the company doesn't know what to do with (otherwise they would have paid the tax consequences and used it as needed/desired), but now that there aren't tax consequences to repatriate it and return it to shareholders, they're returning it to shareholders. Maybe some would prefer a dividend rather than a buyback; but ignoring taxes, they're equivalent in terms of value, and I can't ignore taxes. A dividend is a taxable event and a buyback isn't. I'd rather defer the taxes as much as possible.
    - youeseh 5y ago
      It seems to me that buybacks reward those who've held the stock so far but want to exit their position, and managers who want a bigger bonus short-term. In contrast, dividends reward investors who want to remain invested, but I don't know what incentive management would have unless they too are shareholders.
      - toast0 5y ago
        If I receive a dividend and don't use it to buy more shares, now I'm less invested in that stock. And I've got to pay tax. If the company buys other people's shares, now I own (very marginally) more of the company. I agree with your management incentives, although RSUs and options contracts can adjust for dividends.
- JohnJamesRambo 5y ago
  When everyone does it, you are just getting a market built on nothing that will fall even harder when times get tough. The CEO regularly cashes out their stock and the public and pensions get left holding the bag of empty pumped stock. This will happen repeatedly in the next decade.

b9a2cab5 5y ago

> Balance of payments data show that U.S. firms repatriated $777 billion in 2018, roughly 78 percent of the estimated stock as of end-2017 of offshore cash holdings This is good for the U.S. economy compared to leaving it overseas. Even if it goes into share buybacks, higher asset prices mean businesses can afford to raise capital more cheaply and asset holders (retirees) gain an influx of cash. There's no real reason offshore cash holders would invest their excess cash. If they could do so profitably and sustainably then they would've sold bonds at insanely low rates already to fund those projects. Creating more jobs is not as simple as tossing more money at the problem.

bigtones 5y ago

Share buybacks increase the company share price because they decrease the pool of available shares. Corporate Executives often derive a significant percentage of their total bonus earnings when the share price goes up, so they have a huge incentive to spend the money they repatriated on share buybacks to line their own pockets via large bonuses.

roenxi 5y ago
Share buybacks also decrease the company share price because the company has less money after the buyback.
- chii 5y ago
  which is why share buy backs and dividend payments are the exact same thing (except for the tax implications).
- quickthrowman 5y ago
  > Share buybacks also decrease the company share price Share buybacks reduce shareholders’ equity and the book value of a company since cash is spent but no asset is gained to offset it. It also raises EPS, since the earnings don’t change but the number of shares (denominator) is lower. This doesn’t necessarily translate into a lower price per share, the supply of shares is reduced and the company generally buys their shares back on the open market, and the volume of their buying is substantial.
bitshiftfaced 5y ago
Isn't there a very simple fix for that? Just tie the bonus to market cap.
- adventured 5y ago
  Tie it to a combination of things, including sales and operating income growth, not just market cap (which can be artificially juiced by macro market circumstances floating the boat of mediocre companies).

endisneigh 5y ago

Say what you will about China, but it's really interesting seeing the huge contrast in the relationships both countries have with their large corporations. The USA does put effort to curb these types of efforts, but not enough imho. I'm no historian, but I feel like there was a point where the USA just decided to throw its hands up in trying to regulate big companies. I wonder what needs to happen for the political tide to change.

seibelj 5y ago
China is a corrupt authoritarian dictatorship. They are not someone that countries with the rule of law should try to emulate. I recommend this book if you want an insider’s view of how China really operates: Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China https://www.amazon.com/dp/1982156155/ref=cm_sw_r_cp_api_glt_fabc_YZQK8GJE3PAE0KFCHT1T https://www.amazon.com/dp/1982156155/ref=cm_sw_r_cp_api_glt_...
- mewbear3 5y ago
  Given the rapid development of China, I think this phase of corruption would be gone relatively quick compared to the same phase in US history. Xi Jinping also started a campaign for new type of state and business relationship https://blogs.lse.ac.uk/cff/2020/11/23/state-business-relations-under-xi-what-has-and-hasnt-changed-and-what-are-the-implications/ https://blogs.lse.ac.uk/cff/2020/11/23/state-business-relati... http://www.ecns.cn/m/2016/03-06/201698.shtml http://www.ecns.cn/m/2016/03-06/201698.shtml
- pksebben 5y ago
  To say that we operate on "the rule of law" is a little silly at this point in history, isn't it? We have corruption just as bad if not worse, only in the US we've legitimized more of it and driven it further under the proverbial rug. Am I about to move to China? No. But let's not climb atop such a shaky pedestal.
  - seibelj 5y ago
    To truly think that the rule of law in America and China are even remotely close, and that the average citizen is equally treated by the law in each country, is so absurd that you must be living in some sort of politics bubble, or simply have zero idea of how these country’s legal and political systems operate.