Work

Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform

Year: 2019

Type: article

Abstract: We study the foreign externalities of the recent U.S. tax reform, commonly known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine foreign firms’ stock returns around key tax reform events. We find significant heterogeneity in market responses by country, industry, and firm. Chinese firms experience large negative returns; especially steel, business equipment, and chemical manufacturers; while the rest of the world experiences positive returns. Firms operating in more differentiated product markets experience positive returns, while firms in financial distress experience negative returns, consistent with the TCJA having competitive repercussions. We also find that firms experiencing decreases in effective tax rates following tax reform experience positive returns. Overall, our results suggest that the TCJA had varied, yet systematic effects on foreign firms’ shareholders’ wealth and the global competitive landscape.

Source: Management Science

DOI: 10.1287/mnsc.2019.3451

Authors: Fabio B. Gaertner, Jeffrey L. Hoopes, Braden M. Williams

Institutions: University of Wisconsin–Madison, University of North Carolina at Chapel Hill, The University of Texas at Austin

Language: English

Topic: Corporate Taxation and Avoidance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3125020475

FWCI: 14.47

Cites: 44

Cited by: 72

Related to: 10