Investor Perceptions of the Corporate Alternative Minimum Tax

Fabio B. Gaertner (), Jeffrey L. Hoopes (), Stacie O. Kelley () and Max Pflitsch ()
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Fabio B. Gaertner: Department of Accounting and Information Systems, University of Wisconsin–Madison, Madison, Wisconsin 53706
Jeffrey L. Hoopes: Accounting Area, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Stacie O. Kelley: Department of Accounting and Information Systems, University of Wisconsin–Madison, Madison, Wisconsin 53706
Max Pflitsch: Fakultät Wirtschaftswissenschaften, International Business Taxation, TU Dortmund University, 44221 Dortmund, Germany

Management Science, 2025, vol. 71, issue 9, 7800-7820

Abstract: The Inflation Reduction Act establishes a new 15% corporate minimum tax on the adjusted financial accounting income for large U.S. corporations. Although the minimum tax is estimated to raise $222 billion over 10 years, some fear firms will manipulate their accounting earnings to reduce their tax liabilities, resulting in less revenue raised. Using an event study, we examine the extent to which investors believe this tax will reduce firm value. We examine stock market reactions around key legislative developments leading to the enactment of the book minimum tax. Our findings show targeted firms experience significantly lower stock returns than nontargeted firms during the enactment process (about 1.4%–1.8% of firm value). In aggregate, our findings are consistent with the Joint Committee on Taxation’s revenue estimates. In cross-sectional tests, we fail to find evidence that firms most likely to avoid the tax via earnings management experience more positive returns. We also fail to find less negative returns for firms most likely to pass on the tax to consumers. Overall, our results suggest investors do not expect firms to avoid this tax. Instead, they appear to expect a significant portion of the corporate minimum tax to be remitted by firms and borne by shareholders.

Keywords: book minimum tax; corporate alternative minimum tax; Inflation Reduction Act (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:9:p:7800-7820

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