Southern University College of Business E-Journal


The Tax Cuts and Jobs Act of 1917 (TCJA) amended the Internal Revenue Code of 1986 and significantly lowered the corporate tax rate, in addition to providing other tax incentives to spur corporate investments. The TCJA has the potential to impact corporate cash flows and corporate investment and financing decisions. In response to the TCJA, firms could enhance their capital expenditure budgets, return excess capital to shareholders, and/or hold excess capital for better opportunities in the future. Using S&P 500 firms as a sample, this study finds no statistical difference in the actual corporate taxes paid in the post-and pre-TCJA periods, which may be due to many factors, including earnings management and a new tax on multinationals’ foreign income. Regardless, U.S. corporations significantly increased their capital expenditures following the tax cuts. Although this finding is consistent with the Act’s intent, higher capital expenditures coincided with higher borrowing and higher dividend payments and share repurchases, implying that both investments and repurchases were primarily debt financed. Overall, the study finds significant changes in corporate investment and financing behavior after the TCJA of 2017.