An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Garth F. Novack
Utah State University

Raynolde Pereira
University of Missouri - Columbia

Abstract: This paper examines the market response to the reduction in repatriation taxes created by The American Jobs Creation Act of 2004. We provide two primary findings. First, in an event study using firms with large foreign asset balances we find significantly positive cumulative abnormal returns in response to the reduction in repatriation tax rates. Second, in our cross-sectional analysis of these firms’ cumulative abnormal returns, we find a positive relation between measures of firms’ domestic and foreign tax rates, financial constraint, and investment opportunities. These results support the “trapped equity” view of un-repatriated foreign earnings.

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