Cash-Flow and Market Response to Repatriation

52 Pages Posted: 13 Jun 2008

Date Written: May 24, 2008


The American Jobs Creation Act of 2004 (AJCA) provided a limited-time tax deduction for U.S. firms repatriating accumulated foreign earnings as cash dividends, and I study this natural experiment in corporate cash shocks. Consistent with theories of imperfect capital markets, firms did not use newly freed cash to return value to shareholders but instead increased acquisitions. Firms with strong management also increased executive compensation. In addition, firms raised debt and sold property to fund repatriations. Markets anticipated firm behavior, and firms ultimately choosing to repatriate were penalized in advance by a significant drop in value when the AJCA was enacted.

Keywords: AJCA, Jobs Creation Act, internal capital markets, agency problems, executive compensation

JEL Classification: E62, G14, G32

Suggested Citation

Brennan, Thomas J., Cash-Flow and Market Response to Repatriation (May 24, 2008). 3rd Annual Conference on Empirical Legal Studies Papers, Available at SSRN: or

Thomas J. Brennan (Contact Author)

Harvard Law School ( email )

1557 Massachusetts Ave
6 Ever
Cambridge, MA 02138
United States
617-495-3141 (Phone)

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