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Positive Externality of the American Jobs Creation Act of 2004

Published online by Cambridge University Press:  13 November 2019

Xiaoli Hu ,
Oliver Zhen Li ,
Yuehua Li  and
Sha Pei
Xiaoli Hu
Affiliation:
Hu, xiaolhu@cityu.edu.hk, City University of Hong Kong Department of Accountancy
Oliver Zhen Li*
Affiliation:
Li, bizzhenl@nus.edu.sg, Shanghai Lixin University of Accounting and Finance School of Accounting and National University of Singapore Department of Accounting
Yuehua Li
Affiliation:
Li, li.yuehua@mail.shufe.edu.cn, Shanghai University of Finance and Economics School of Accountancy
Sha Pei
Affiliation:
Pei, peisha@lixin.edu.cn, Shanghai Lixin University of Accounting and Finance School of Accounting
*
Li (corresponding author), bizzhenl@nus.edu.sg
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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 2 , March 2021 , pp. 607 - 646
Copyright
© Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Michelle Hanlon (the referee) and Paul Malatesta (the editor) for comments and suggestions. Oliver Zhen Li acknowledges support from the National Natural Science Foundation of China (Grant #: 71972135) and Musim Mas Professorship. All errors are ours.

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