Company stock price reactions to the 2016 election shock: Trump, taxes, and trade

Alexander Wagner, Richard Zeckhauser and Alexandre Ziegler

Journal of Financial Economics, 2018, vol. 130, issue 2, 428-451

Abstract: Donald Trump's surprise election shifted expectations: corporate taxes would be lower and trade policies more restrictive. Relative stock prices responded appropriately. High-tax firms and those with large deferred tax liabilities (DTLs) gained; those with significant deferred tax assets from net operating loss carryforwards (NOL DTAs) lost. Domestically focused companies fared better than internationally oriented firms. A price contribution analysis shows that easily assessed consequences (DTLs, NOL DTAs, tax rates) were priced faster than more complex issues (net DTLs, foreign exposure). In sum, the analysis demonstrates that expectations about tax rates greatly impact firm values.

Keywords: Stock returns; Event study; Corporate taxes; Trade policy; Corporate interest payments; Post-news drift; Election surprise; Market efficiency; Price contribution analysis (search for similar items in EconPapers)
JEL-codes: G12 G14 H25 O24 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (94)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:130:y:2018:i:2:p:428-451

DOI: 10.1016/j.jfineco.2018.06.013

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