Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act
Speaker
Abstract
| The American Jobs Creation Act (AJCA) significantly lowered the tax cost at which US firms could access their un-repatriated foreign earnings. We use this temporary shock to the cost of financing investment and its variation across firms, to examine the role of financial constraints in the firm’s investment decisions. Controlling for the ability to repatriate foreign earnings in a more tax efficient way under the AJCA, we find that for a majority of firms there was little change in domestic investment – the policy objective of the law. We do find, however, that for the subset of firms which are financially constrained, they invested a majority of the repatriated funds in approved domestic investment. We find little change in financial policy (e.g. leverage and equity payouts) once we control for the ability to repatriate funds under the AJCA. These findings point out the importance of understanding finance theory when designing optimally targeted tax incentives. |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| www.eur.nl/financegroup |
| Contact information: |
| Viorel Roscovan |
