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

59 Pages Posted: 18 Aug 2009 Last revised: 1 Mar 2021

See all articles by Michael W. Faulkender

Michael W. Faulkender

University of Maryland - Robert H. Smith School of Business

Mitchell A. Petersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

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Date Written: August 2009

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.

Suggested Citation

Faulkender, Michael W. and Petersen, Mitchell A., Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act (August 2009). NBER Working Paper No. w15248, Available at SSRN: https://ssrn.com/abstract=1454981

Michael W. Faulkender

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

College Park, MD 20742-1815
United States

Mitchell A. Petersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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