Working Paper: NBER ID: w15248
Authors: Michael Faulkender; Mitchell Petersen
Abstract: The American Jobs Creation Act (AJCA) significantly lowered US firms' tax cost when accessing their unrepatriated foreign earnings. Using this temporary shock to the cost of internal financing, we examine the role of capital constraints in firms' investment decisions. Controlling for the capacity to repatriate foreign earnings under the AJCA, we find that a majority of the funds repatriated by capital constrained firms were allocated to approved domestic investment. While unconstrained firms account for a majority of repatriated funds, no increase in investment resulted. Contrary to other examinations of the AJCA, we find little change in leverage and equity payouts.
Keywords: American Jobs Creation Act; Investment; Capital Constraints; Repatriations
JEL Codes: G31; G32; G38; K34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| AJCA (G52) | increased domestic investment among capital-constrained firms (E22) |
| capital-constrained firms that repatriated funds (F21) | increased investment (E22) |
| capital-constrained firms (D25) | large increases in investment (E22) |
| repatriation under AJCA (H26) | investment behavior of firms (D22) |
| capital-constrained firms (D25) | account for 44% of repatriating firms (F23) |
| unconstrained firms (D22) | minimal increases in shareholder payouts (G35) |