Unlocking Trapped Foreign Cash, Investor Types, and Firm Payout Policy
53 Pages Posted: 13 Nov 2019
Date Written: November 1, 2019
I study whether trapped foreign cash levels and investor type explain variation in US-based multinationals’ payout policy responses to tax-repatriation-driven cash windfalls. To do so, I use the deemed mandatory repatriation of trapped foreign cash included in the 2017 Tax Cuts and Jobs Act (TCJA). I find my measure of the level of “unlocked” trapped foreign cash (UTC) is related to increases in repurchases and dividends observed post-TCJA. Motivated by prior research, I examine whether this increase in payout varies with institutional investor type: transient, dedicated, and quasi-indexers (Bushee 2001). I find that firms with high UTC and low (high) dedicated ownership see an increase (no change) in repurchases post-TCJA. I do not observe similar variation with investor type for dividends.
Keywords: Cash, Tax, Corporate Payout, Payout Policy, Stock Repurchases, Dividends, Investment, Fiscal Policy, Firm Behavior, Tax Cuts and Jobs Act, Institutional Investors
JEL Classification: G35, G32, G23, M40, H32, H30, H20, F23
Suggested Citation: Suggested Citation