 Competitive Externalities of Tax CutsMichael P. Donohoe, Hansol Jang and Petro Lisowsky Journal of Accounting Research, 2022, vol. 60, issue 1, 201-259 Abstract: We examine how tax cuts that benefit some firms are related to the economic performance of their direct competitors. Consistent with tax cuts decreasing the cost of initiating competitive strategies, we find that a decrease in the tax burden for only a specific group of firms in the U.S. economy (i.e., “rivals”) has a negative economic effect on the performance of its direct competitors not directly exposed to the same tax cut (i.e., “competitors”). This negative externality is stronger when the relatively higher taxed competitors (1) are financially constrained, (2) operate in more competitive markets, (3) have similar products to their lower taxed rivals, (4) face rivals that retain more of their cash tax savings due to lower dividends and share repurchases, and (5) face lower taxed, but financially constrained, rivals. We also find that shareholders and lenders price the negative externality manifested in these competitors’ economic performance. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:60:y:2022:i:1:p:201-259 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman More articles in Journal of Accounting Research from Wiley Blackwell |
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