Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act
Mitchell A. Petersen
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)
Michael W. Faulkender
University of Maryland - Robert H. Smith School of Business
April 29, 2012
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.
Number of Pages in PDF File: 58
Keywords: taxes, taxation, investment incentives, panel econmetricsworking papers series
Date posted: March 23, 2009 ; Last revised: May 1, 2012
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