NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Michael Faulkender, Mitchell Petersen

NBER Working Paper No. 15248
Issued in August 2009
NBER Program(s):   CF

The American Jobs Creation Act (AJCA) significantly lowered US 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. While 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.

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This paper was revised on May 2, 2012

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Document Object Identifier (DOI): 10.3386/w15248

Published: Petersen, Mitchell A. and Michael Faulkender. 2012. Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act. Review of Financial Studies. 25(11): 3351-3388.

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