Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act

58 Pages Posted: 23 Mar 2009 Last revised: 1 May 2012

See all articles by Mitchell A. Petersen

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 29, 2012

Abstract

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.

Keywords: taxes, taxation, investment incentives, panel econmetrics

Suggested Citation

Petersen, Mitchell A. and Faulkender, Michael W., Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act (April 29, 2012). Available at SSRN: https://ssrn.com/abstract=1364207 or http://dx.doi.org/10.2139/ssrn.1364207

Mitchell A. Petersen

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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Michael W. Faulkender (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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