This paper examines the earnings retention practices of incorporated firms in Africa. It hypothesizes that foreign and local firms operating in Africa have similar retention policies, and by extension similar tendency for capital exports. It makes use of robust descriptive and empirical methodology involving 444 (and 293 for the empirical analysis) listed firms, in 13 exchanges over the period 2005‒2018. The results show that corporate earnings retention is context sensitive; and that being foreign is indeed a deciding factor. The empirical evidence, based on the application of system dynamic GMM estimation procedure, further reveals that: firms with majority foreign interests are less likely to pursue aggressive earnings retention policies; earnings retention declines with increase in foreign interests; for foreign firms mostly, increase in the burden of effective tax payment significantly undermines earnings retention capacities of firms; and for local firms largely, increased investments in fixed assets provides a viable policy option for improving access to the external markets for corporate finance. The results also show that growth-oriented foreign and local firms are more likely to employ aggressive earnings retention policies to minimize their exposure to external capital markets. The paper concludes that, indeed being foreign matters in the earnings retention and internal capital markets debate in Africa, although firm-specific characteristics simultaneously play significant role in moderating the incentive of foreign companies (particularly the MNCs) to retain rather than repatriate profits. Evidence from this study therefore calls for the need for policy and capital control emphases to be shifted to deal with how firms (foreign and local) manage their internal capital market operations. The interactive impact also suggests that tax payment remains a functional mechanism for moderating the negative impact of tax on corporate earnings retention behaviour.
