Bringing It Home: A Study of the Incentives Surrounding the Repatriation of Foreign Earnings under the American Jobs Creation Act of 2004

46 Pages Posted: 29 May 2009 Last revised: 15 Nov 2011

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Linda K. Krull

University of Oregon

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2009

Abstract

The American Jobs Creation Act of 2004 (the Act) creates a temporary tax holiday that effectively reduces the U.S. tax rate on repatriations from foreign subsidiaries from 35 percent to 5.25 percent. Firms receive the reduced tax rate by electing to take an 85 percent dividends received deduction on repatriations in 2004 or 2005. This paper investigates the characteristics of firms that repatriate under the Act and how they use the repatriated funds. We find that firms that repatriate under the Act have lower investment opportunities and higher free cash flows than non-repatriating firms. Further, we find that repatriating firms increase share repurchases during 2005 by approximately $60 billion more than non-repatriating firms, an amount that cannot be explained by differences in earnings between the two groups of firms. This increase represents about 20 percent of the $291.6 billion repatriated by our sample firms under the Act.

Keywords: Multinational Firms, Foreign direct investment, Corporate Taxation, Payout policy, Repurchases

JEL Classification: F23, G35, H20, H25

Suggested Citation

Blouin, Jennifer and Krull, Linda K., Bringing It Home: A Study of the Incentives Surrounding the Repatriation of Foreign Earnings under the American Jobs Creation Act of 2004 (May 28, 2009). Journal of Accounting Research, Vol. 47, No. 4, September 2009. Available at SSRN: https://ssrn.com/abstract=1411371

Jennifer Blouin

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Linda K. Krull (Contact Author)

University of Oregon ( email )

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

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