SEC comment letters related to permanently reinvested earnings

Lisa Eiler, Lisa Kutcher

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper, we examine how permanently reinvested earnings (PRE) and disclosure transparency surrounding PRE influences external monitoring from the Securities and Exchange Commission (SEC). Our research is motivated by increased congressional and SEC scrutiny into companies with substantial PRE via their foreign operations. We hypothesize that firms are more likely to receive a PRE-related comment letter if they have large amounts of PRE, a large estimated hypothetical tax on repatriation, increases in PRE, and have less transparent disclosures related to the hypothetical tax on PRE. We find that the estimated hypothetical tax on repatriation and the transparency of PRE disclosures are determinants of receiving a PRE-related comment letter. Further analysis shows that cash-constrained firms with a large estimated hypothetical tax on repatriation are more likely to receive a PRE-related comment letter. Our research contributes to a growing body of research into the external monitoring role of the SEC in the form of comment letters.

Original languageEnglish
Pages (from-to)110-116
Number of pages7
JournalAdvances in Accounting
Volume34
DOIs
StatePublished - Sep 1 2016

Keywords

  • Comment letters
  • Deferred tax liability
  • Permanently reinvested earnings
  • Securities and Exchange Commission

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