More Cash, Less Innovation: The Effect of the American Jobs Creation Act on Patent Value

Firms can become less innovative following a sudden “inflow” of cash. Specifically, multinational firms that were eligible to repatriate (and indeed repatriated) cash to the U.S. under the American Jobs Creation Act (AJCA) generate less valuable patents than otherwise similar firms. This effect only exists among firms in less competitive industries and financially unconstrained firms, and is mainly driven by the reduction in the value of exploratory innovation and U.S.-originated patents. We also show that less cash can lead to more innovation by using a different identification strategy that focuses on variation in debt maturity following the 2008 financial crisis.