Investigating Shareholder Payouts of Repatriating Firms with Differential Extraterritorial Income Exclusion and Domestic Manufacturing Deduction Benefits

• In Event: Session A: Taxes

Abstract

Congress passed the American Jobs Creation Act (AJCA) in 2004 to create a tax holiday allowing multinational firms to repatriate foreign earnings and invest domestically for the stated purpose of increasing domestic employment. The Act phased out the widely criticized export incentive, Extraterritorial Income Exclusion (ETI), and phased in a Domestic Manufacturing Deduction (DMD) to stimulate domestic investment and increase job positions. I investigate whether the repatriating firms differentially change shareholder payout with respect to their repatriated cash because of differential benefits from DMD and ETI. I find limited evidence indicating firms receiving an incremental benefit from DMD increased shareholder payouts less than ETI firms. This result shows that the DMD provision of the Act does not reduce shareholder payout significantly.

Author

• Harrison Liu, University of Texas at San Antonio