Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act

56 Pages Posted: 4 Feb 2009 Last revised: 4 Jun 2010

Dhammika Dharmapala

University of Chicago Law School

C. Fritz Foley

Harvard Business School; National Bureau of Economic Research (NBER)

Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Bank of England - Monetary Policy Committee

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2010

Abstract

The Homeland Investment Act provided a tax holiday for the repatriation of foreign earnings. Advocates argued the Act would alleviate financial constraints by reducing the cost to U.S. multinationals of accessing internal capital. This paper shows that repatriations did not increase domestic investment, employment or R&D—even for firms that appeared to be financially constrained or lobbied for the holiday. Instead, a $1 increase in repatriations was associated with a $0.60-$0.92 increase in shareholder payouts. Regulations intended to restrict such payouts were undermined by the fungibility of money. Results indicate that U.S. multinationals were not financially constrained and were well-governed.

Keywords: Repatriations, financial constraints, governance, international taxation, flypaper effect

JEL Classification: G3, F23, G14, G18, H26

Suggested Citation

Dharmapala, Dhammika and Foley, C. Fritz and Forbes, Kristin J., Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act (April 27, 2010). Journal of Finance, forthcoming; MIT Sloan Research Paper No. 4741-09; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=1337206 or http://dx.doi.org/10.2139/ssrn.1337206

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
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C. Fritz Foley

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)

National Bureau of Economic Research (NBER)

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Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-416
Cambridge, MA 02142
United States
617-253-8996 (Phone)

HOME PAGE: http://web.mit.edu/kjforbes/www

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Bank of England - Monetary Policy Committee ( email )

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London EC2R 8AH
United Kingdom

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