Unlocking Trapped Foreign Cash, Investor Types, and Firm Payout Policy

53 Pages Posted: 13 Nov 2019

See all articles by Erik Olson

Erik Olson

Yale University, School of Management

Date Written: November 1, 2019

Abstract

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

Olson, Erik, Unlocking Trapped Foreign Cash, Investor Types, and Firm Payout Policy (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3479506 or http://dx.doi.org/10.2139/ssrn.3479506

Erik Olson (Contact Author)

Yale University, School of Management ( email )

New Haven, CT
United States

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