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The real and financial effects of internal liquidity: Evidence from the Tax Cuts and Jobs Act

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  • Albertus, James F.
  • Glover, Brent
  • Levine, Oliver

Abstract

The Tax Cuts and Jobs Act unlocked as much as $1.7 trillion of U.S. multinationals’ foreign cash. We examine the real and financial response to this liquidity shock and find that firms did not increase capital expenditures, employment, R&D, or M&A, regardless of financial constraints. On the financial side, firms paid out only about one-third of the new liquidity to shareholders and retained half as cash. This high retention was not associated with poor governance. The high propensity to retain the liquidity shock as cash, even among well-governed firms with limited financial constraints, is difficult to reconcile with existing theory.

Suggested Citation

  • Albertus, James F. & Glover, Brent & Levine, Oliver, 2025. "The real and financial effects of internal liquidity: Evidence from the Tax Cuts and Jobs Act," Journal of Financial Economics, Elsevier, vol. 166(C).
    • Handle: RePEc:eee:jfinec:v:166:y:2025:i:c:s0304405x25000145
    DOI: 10.1016/j.jfineco.2025.104006
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    More about this item

    Keywords

    Tax Cuts and Jobs Act (TCJA); Corporate liquidity; Corporate cash holdings; Corporate income tax; Multinational corporations; Worldwide tax system; Repatriation tax;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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