Stock Market Reaction to Increased Transparency: An Analysis of Country-By-Country Reporting in Developing Countries

Bathusi Gabanatlhong ()
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Bathusi Gabanatlhong: Institute of Economic Studies, Charles University, Prague, Czech Republic

No 2024/37, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Country-by-country reporting aims to curb tax avoidance by multinational corporations and increase transparency in the tax system. This paper provides the first evidence of the effect of country-by-country in developing countries, focusing on the market response of the African stock market to this regulation. Using an event study design, the results indicate a significant negative market response for firms subject to CbCR requirements. Tax-aggressive firms show a pronounced significant negative response around the event date, suggesting that investors anticipate increased tax liabilities due to heightened scrutiny of their tax planning practices, potentially reducing future profits. Cross-listed firms exhibit a positive significant market response in foreign markets, while the broader domestic market shows a negative reaction, underscoring the variation in how foreign and domestic investors process similar information. This paper sheds light on how regulatory transparency influences investor sentiment across different markets.

Keywords: country-by-country reporting; developing countries; event study; cross-listed firms; heterogeneous treatment effect; generalised random forest (search for similar items in EconPapers)
JEL-codes: F23 G14 H25 H26 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2024-10, Revised 2024-10
New Economics Papers: this item is included in nep-acc and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2024_37

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