The Effect of the Domestic Production Activities Deduction on Corporate Payout Behavior

40 Pages Posted: 13 Feb 2008 Last revised: 6 Jun 2014

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Linda K. Krull

University of Oregon

Casey M. Schwab

University of North Texas

Date Written: May 31, 2014

Abstract

The American Jobs Creation Act of 2004 created a tax holiday allowing firms to repatriate foreign earnings at a reduced tax rate and a domestic production activities deduction (DPAD) to encourage domestic investment. We investigate whether the DPAD affects firms’ decisions to use repatriated earnings to increase investment versus shareholder payout. We find that firms receiving an incremental benefit from the DPAD decrease payout by approximately $7.2 billion whereas firms receiving no incremental benefit from the DPAD increase payout by approximately $18.3 billion. This suggests that, under certain conditions, firms retain repatriated funds which may lead to increased domestic investment.

Keywords: Corporate Taxation, Payout Policy, Repurchases, Section 199

JEL Classification: G35, H20, H25

Suggested Citation

Blouin, Jennifer and Krull, Linda K. and Schwab, Casey M., The Effect of the Domestic Production Activities Deduction on Corporate Payout Behavior (May 31, 2014). Available at SSRN: https://ssrn.com/abstract=1092222 or http://dx.doi.org/10.2139/ssrn.1092222

Jennifer Blouin

University of Pennsylvania - Accounting Department ( email )

1315 SHDH
3620 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Linda K. Krull

University of Oregon ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States
541-346-3252 (Phone)

Casey M. Schwab (Contact Author)

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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