Positive Externality of the American Jobs Creation Act of 2004

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Original languageEnglish
Journal / PublicationJournal of Financial and Quantitative Analysis
Online published13 Nov 2019
Publication statusOnline published - 13 Nov 2019

Abstract

U.S. multinational enterprises repatriated over $300 billion under the 2004 tax holiday. The repatriated funds can improve debt financing environment of nonrepatriating firms, especially those that are financially constrained. We document that such an externality of the tax holiday increases debt financing and consequently investments for financially constrained nonrepatriating firms relative to less constrained nonrepatriating firms. Using private loan market data, we further confirm a link from repatriated funds to increased debt financing for financially constrained nonrepatriating firms. Overall, the 2004 tax holiday appears to have benefited the U.S. economy through its positive externality on the debt market.