Investment and capital constraints: Repatriations under the American Jobs Creation Act

Michael Faulkender, Mitchell Petersen*

*Corresponding author for this work

Research output: Contribution to journalReview article

61 Scopus citations

Abstract

The American Jobs Creation Act (AJCA) significantly lowered U.S. 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. Although 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.

Original languageEnglish (US)
Pages (from-to)3351-3388
Number of pages38
JournalReview of Financial Studies
Volume25
Issue number11
DOIs
StatePublished - Nov 1 2012

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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