Watch What I Do, Not What I Say: the Unintended Consequences of the Homeland Investment Act

By Dhammika Dharmapala, C. Fritz Foley, Kristin J. Forbes, Heitor Almeida, Alan J. Auerbach, Jennifer Blouin, T. Brennan, Alex M. Brill, Robin Greenwood, M. Hanlon and 6 more. 2011

243 citations recorded by the source corpus.

This paper analyzes the impact on firm behavior of the Homeland Investment Act of 2004, which provided a one-time tax holiday for the repatriation of foreign earnings by U.S. multinationals. The analysis controls for endogeneity and omitted variable bias by using instruments that identify the firms likely to receive the largest tax benefits from the holiday. Repatriations did not lead to an increase in domestic investment, employment or R&D -- even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders. These results suggest that the domestic operations of U.S. multinationals were not financially constrained and that these firms were reasonably well-governed. The results have important implications for understanding the impact of U.S. corporate tax policy on multinational firms.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/cdca011ba4694383b2a96c51ce6bcb7c7912ab93

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. V. Atanasov
2. Bernard S. Black
3. Andrew Kerner
4. G. Palaniappan
5. Ronald W. Masulis
6. E. Zhang
7. Darren Henry

In Strategy and Management

1. V. Atanasov
2. Andrew Kerner
3. Bernard S. Black
4. Sonal S. Pandya
5. Ronald W. Masulis
6. E. Zhang
7. Yoram Z. Haftel

Citations in the corpus

• Shock-Based Causal Inference in Corporate Finance and Accounting Research (2015, methodology): “Six use legal shocks – SOX (Duchin et al., 2010; Iliev, 2010); US state laws (Adams and Santos, 2006); Swedish pension reform (Giannetti and Laeven, 2009); US tax rules (Desai and Dharmapala, 2009), and the U.S. Homeland Investment Act (Dharmapala et al., 2011).”
• What Do We Know About Base Erosion and Profit Shifting? A Review of the Empirical Literature (2014, unknown): “6 million European business entities; it has been used, for instance, by Huizinga and Leuven (2008), Dischinger (2010) and Dharmapala and Riedel (2013).”
• What We Talk About When We Talk About Foreign Direct Investment (2014, background): “Second, FDI flows 16 While the HIA worked as a catalyst for income repatriation, evidence does not suggest this capital was reinvested into the US economy in the ways the act’s supporters hoped (Dharmapala et al. 2011).”
• The Effect of Repatriation Tax Costs on U.S. Multinational Investment (2015, unknown): “This extended sample period permits analysis of firms’ investment immediately following the Act and is consistent with the period of the primary domestic reinvestment analysis conducted in Blouin and Krull (2009) and Dharmapala et al. (2011).”