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Journal of Financial and Quantitative Analysis Vol. 56 No. 2 2021

Positive Externality of the American Jobs Creation Act of 2004

Xiaoli Hu1,2; Oliver Zhen Li3; Yuehua Li4; Sha Pei5,6

1 Hu · 2 Department of Accountancy · 3 National University of Singapore · 4 Shanghai University of Finance and Economics · 5 Shanghai Lixin University of Accounting and Finance · 6 University of Finance and Economics

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.

DOI
10.1017/s0022109019001017
Volume
56
Issue
2
Pages
607-646
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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