AN INVESTIGATION OF THE VALUE RELEVANCE OF THE CORPORATE TAX REDUCTIONS FROM 1987 CANADIAN TAX REFORM

Tao Zeng

Global Journal of Business Research, 2007, vol. 1, issue 2, 35-44

Abstract: This paper examines the impact of tax savings from the 1987 Canadian Tax Reform on firm equity value in the context of a tax-based market valuation model. The 1987 Canadian Tax Reform, which dramatically changes the tax regime in Canada, provides a unique opportunity to test the effects of the changes in corporate taxes on the implementation of the market valuation model. This study assesses the incidence of the Canadian Tax Reform and the firms’ potential tax savings under the reform, and links this to market value. The empirical results document a significant and positive association between levels of tax savings from the tax reform and levels/changes of stock prices. This paper provides evidence consistent with the perceived importance of corporate tax payment in the marketplace.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:gjbres:v:1:y:2007:i:2:p:35-44

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