Do tax havens affect the usage of share buybacks schemes?

Abstract This study examines whether the use of tax haven subsidiaries by U.S. multinational corporations (MNCs) is associated with more intense usage of share buybacks. I find that MNCs' more intensive tax haven subsidiary usage is positively associated with a higher buyback ratio, a higher level of free cash flow and a higher level of return on investment. I also find a higher increase in the buyback ratio of American companies following the sales of U.S. stocks from entities located in tax havens. In cross‐sectional analyses, I identify channels through which the positive association between tax haven intensity and share buybacks is more pronounced. I also test the share buyback execution of U.S. MNCs affected by recent legislation promulgated in the U.S. (2017 corporate tax cut, 2017 repatriation tax). This paper contributes to the literature by documenting a robust positive relationship between tax haven intensity and share buybacks among U.S. multinationals. It further explores the channels through which tax avoidance translates into repurchase behaviour, using rich panel data and multiple identification strategies, including instrumental variables, propensity score matching and difference‐in‐differences estimation.