Stock Repurchases and the 2017 Tax Cuts and Jobs Act

Abstract

We study the effects of the Tax Cuts and Jobs Act (TCJA) on share repurchases, accruals, and other corporate policies. TCJA generates tax windfalls through a repatriation tax cut and an income tax cut. Using monthly repurchase data collected from SEC filings, we find the surge of repurchases following TCJA is driven by the repatriation tax cut, not the income tax cut. Executive incentives matter to TCJA-triggered repurchases. In contrast, the income tax cut leads firms to reduce accruals in the quarter before TCJA and decrease leverage following TCJA. We find no increases in investment or wages.

Keywords: Accruals, Leverage, Repatriation, Repurchase, TCJA

JEL Classification: G35, M41, M48