DISCUSSION OF Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004

This article discusses whether investors impound the expected decrease in deferred tax liability due to the repatriation of foreign earnings under the American Jobs Creation Act of 2004 (AJCA 2004) into firm value. The authors use price and long-window returns as alternative measures of firm value. The research question is timely because AJCA 2004 allows a one-time tax holiday for earnings repatriated in 2004 or 2005 of 85% of foreign earnings repatriated to the US parent company via extraordinary cash dividends under Internal Revenue Code Section 965. The paper takes a broad approach and examines market expectations in the pre-AJCA 2004 period. The variable of interest in the returns model is a proxy measuring estimated tax savings from AJCA 2004 on PRE repatriated during the one-year window provided by the tax holiday. The authors do not mention a confounding effect of AJCA 2004 that may affect the market price for multinationals: the repeal of the extraterritorial income exclusion.