Unequal Rewards to Firms: Stock Market Responses to the Trump Election and the 2017 Corporate Tax Reform

Zeckhauser, Richard; Ziegler, Alexandre

doi:10.1257/pandp.20181091

Cited by 55 publications

(29 citation statements)

References 2 publications

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“…We validate our event dates using cross-sectional analysis similarly to Wagner et al (2018b), who use an expanded event window to test cross-sectional variation in the stock price response to tax reform for U.S. firms. In results reported in the online appendix, we find cross-sectional results in the United States similar to those reported by Wagner et al (2018b). We also find that their results, computed over a two-month period, are largely driven by our event dates.…”

Section: Domestic Foreign and By Country Stocksupporting

confidence: 86%

“…Summed across all six windows, this equals a 3.6% total return, suggesting the market responded significantly to news on those days. We also validate our event dates using crosssectional tests consistent with prior literature (Wagner et al 2018b). 3 We then examine the foreign externalities of U.S. tax reform by examining event returns for all foreign firms.…”

Section: Introductionsupporting

confidence: 59%

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

2020

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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 in steel, business equipment, and chemical manufacturers, whereas the rest of the world experiences positive returns. Firms operating in more differentiated product markets experience positive returns, whereas 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.

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Section: Domestic Foreign and By Country Stocksupporting

confidence: 86%

Section: Introductionsupporting

confidence: 59%

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

2020

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“…While both the share of equity and the market beta of the portfolios of households with different political affiliations are quite similar prior to the election, the composition of their equity holdings is not. And stock market performance differed substantially across stocks and sectors expected to benefit from the unexpected change in party control (Wagner et al, 2018). These facts do not change our previous results.…”

Section: B Differences In the Ex Ante Composition Of Equity Holdingscontrasting

confidence: 69%

Belief Disagreement and Portfolio Choice

et al. 2018

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Using a proprietary dataset of the portfolio holdings of millions of US households, we document how agents who believe in different models of the world update their beliefs heterogeneously in response to a public signal. We identify households ex ante that hold different models of the world using political party affiliation (probabilistically inferred from zip code), and our public signal is the unexpected outcome of the US national election of 2016. Relative to Democrats, Republican investors actively increase the equity share and market beta of their portfolios following the election. The rebalancing is due to a small share of investors making large adjustments. We conclude that this behavior is driven by belief heterogeneity because of extensive controls for differential hedging needs or preferences, including detailed controls for age, wealth, income, state, and even county-employer fixed effects.

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“…The literature that applies the event study methodology is manifold [38,47]. Kothari and Warner [48] estimate that over 500 published studies have adopted the event study method to measure the impact of corporate governance strategies, mergers and acquisitions, financing decisions, post earnings announcements, chief executive successions, effects of regulation, and changes in taxation [49].…”

Section: Event Studiesmentioning

confidence: 99%

The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks

Dordi

Weber

2019

Sustainability

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Several prominent institutional investors concerned about climate change have announced their intention or have divested from fossil fuel shares, to limit their exposure to the industry. The act of fossil fuel divestment may directly depress share prices or stigmatize the industry’s reputation, resulting in lower share value. While there has been considerable research conducted on the performance of the fossil fuel industry, there is not yet any empirical evidence that divestment announcements influence share prices. Adopting an event study methodology, this study measures abnormal deviations in stock prices of the top 200 global oil, gas, and coal companies by proven reserves, on days of prominent divestment announcements. Events are analyzed independently and in aggregate. The results make several notable contributions. While many events experienced short-term negative abnormal returns around the event day, the effects of events were more pronounced over longer event windows following the New York Climate March, suggesting a shift in investor perception. The results also find that divestment announcements related to campaigns, pledges, and endorsements all have a significant effect over the short-term event window. Finally, the results control for the general underperformance of the industry over the estimation window, attesting that the price change is caused by divestment announcements. Several robustness tests using alternate expected returns models and statistical tests were conducted to ensure the accuracy of the result. Overall, this study finds that divestment announcements decrease the share price of the fossil fuel companies, and thus, we conclude that ‘divestors’ can influence the share price of their target companies. Theoretically, the result adds new knowledge regarding the efficacy of the efficient market hypothesis in relation to divestment.

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Unequal Rewards to Firms: Stock Market Responses to the Trump Election and the 2017 Corporate Tax Reform

Cited by 55 publications

References 2 publications

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

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

Belief Disagreement and Portfolio Choice

The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks

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