This study uses confidential information on foreign affiliate assets to investigate
whether the Tax Cuts and Jobs Act of 2017 (TCJA) alleviated investment frictions created by
permanently reinvested earnings (PRE) reported in U.S. multinational corporations’ (MNCs)
consolidated financial statements. We begin by investigating the repatriation behavior of MNCs
surrounding enactment of the TCJA. Consistent with accounting creating frictions within the
MNC, we document that repatriations are greater for firms with relatively more PRE held in cash.
Relatedly, we find that domestic investment by MNCs with above median PRE held in cash is
more sensitive to domestic cash flow than other firms before but not after the TCJA. Overall, our
results are consistent with PRE being associated with internal capital market frictions which were
alleviated after the TCJA.