Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/64904

Early Evidence on the use of Foreign Cash following the Tax Cuts and Jobs Act of 2017

File Size Format  
HARC 2020 paper 225.pdf 593.08 kB Adobe PDF View/Open

Item Summary

Title:Early Evidence on the use of Foreign Cash following the Tax Cuts and Jobs Act of 2017
Authors:Brooke Beyer
Jimmy Downes
Mollie Mathis
Eric Rapley
Keywords:Tax Cuts and Jobs Act
Payout policy
Capital investment
Internal capital market
Date Issued:31 Aug 2019
Abstract:The Tax Cuts and Jobs Act of 2017 (TCJA) imposes a mandatory repatriation tax on multinational firms’ unremitted foreign earnings, reducing internal capital market frictions through a deemed repatriation of unremitted foreign earnings and eliminating future repatriation tax costs. This change to the U.S. corporate tax system gives multinational firms access to lower cost internal capital (i.e., foreign cash). This study provides evidence that multinational firms with greater levels of pre-TCJA foreign cash increased their post-TCJA repurchases but did not change their shareholder dividends or capital expenditures. We further document that the increase in repurchases is driven by those firms that had greater pre-TCJA repatriation tax costs and firms in weaker financial health. This outcome is consistent with internal capital market theory and suggests a decrease in internal capital market frictions allows companies access to trapped foreign cash. However, our results suggest firms used the repatriated foreign cash on shareholder payouts rather than capital investment. This conflicts with a stated goal of the TCJA to spur domestic economic growth directly and highlights an unintended consequence of the TCJA.
URI:http://hdl.handle.net/10125/64904
Appears in Collections: 19 Taxation


Please email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.

Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.