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Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act

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  • Michael Faulkender
  • Mitchell Petersen

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. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

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  • Michael Faulkender & Mitchell Petersen, 2012. "Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act," The Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3351-3388.
    • Handle: RePEc:oup:rfinst:v:25:y:2012:i:11:p:3351-3388
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    More about this item

    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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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