Stock Repurchases and the 2017 Tax Cuts and Jobs Act

Abstract

We study the effects of the 2017 Tax Cuts and Jobs Act (TCJA) on repurchases, leverage and investment. The TCJA generates tax windfalls through a repatriation tax cut and a corporate income tax cut. Using monthly repurchase data from SEC filings, we find the surge of repurchases after the TCJA is driven by the repatriation tax cut, and not the income tax cut. Executive incentives and employee ownership affect TCJA-triggered repurchases. Investments increase, primarily in response to the income tax cut and especially for capital-constrained, low-leverage, or profitable firms. Highly-levered firms with high income taxes reduce their leverage significantly.