56 Pages Posted: 4 Feb 2009 Last revised: 4 Jun 2010
Date Written: April 27, 2010
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: 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
By Ramin Baghai