The real and financial effects of internal liquidity: Evidence from the Tax Cuts and Jobs Act

James F. Albertus, Brent Glover and Oliver Levine

Journal of Financial Economics, 2025, vol. 166, issue C

Abstract: The Tax Cuts and Jobs Act unlocked as much as $1.7 trillion of U.S. multinationals’ foreign cash. We examine the real and financial response to this liquidity shock and find that firms did not increase capital expenditures, employment, R&D, or M&A, regardless of financial constraints. On the financial side, firms paid out only about one-third of the new liquidity to shareholders and retained half as cash. This high retention was not associated with poor governance. The high propensity to retain the liquidity shock as cash, even among well-governed firms with limited financial constraints, is difficult to reconcile with existing theory.

Keywords: Tax Cuts and Jobs Act (TCJA); Corporate liquidity; Corporate cash holdings; Corporate income tax; Multinational corporations; Worldwide tax system; Repatriation tax (search for similar items in EconPapers)
JEL-codes: F23 G31 G32 G34 G35 H25 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:166:y:2025:i:c:s0304405x25000145

DOI: 10.1016/j.jfineco.2025.104006

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