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

Fabio B. Gaertner (), Jeffrey Hoopes () and Braden M. Williams ()
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Fabio B. Gaertner: University of Wisconsin–Madison, Madison, Wisconsin 53706;
Braden M. Williams: University of Texas at Austin, Austin, Texas 78712

Management Science, 2020, vol. 66, issue 2, 687-697

Abstract: 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.

Keywords: political economy; corporate tax; competition; tax reform; TCJA (search for similar items in EconPapers)
Date: 2020
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