The Valuation Implications of a Firm's Ability to Mitigate or Sustain the Effects of Tax Law Changes

33 Pages Posted: 15 Oct 1998

See all articles by Samuel L. Tiras

Samuel L. Tiras

Indiana University - Kelley School of Business

Clark M. Wheatley

Florida International University

Date Written: September 3, 1998

Abstract

This study examines the valuation implications of the ability of firms to mitigate tax increases or sustain tax decreases. We propose that some firms are able to mitigate increases in taxes faster and sustain decreases in taxes longer than other firms. We investigate that conjecture by decomposing earnings and isolating the tax change component. Our results indicate that the securities markets expect strong (weak) firms to bear a lesser (greater) share of the tax burden when effective tax rates are increased and to receive a greater (lesser) share of the tax benefit when effective tax rates are decreased.

JEL Classification: M41, K34, G12

Suggested Citation

Tiras, Samuel L. and Wheatley, Clark M., The Valuation Implications of a Firm's Ability to Mitigate or Sustain the Effects of Tax Law Changes (September 3, 1998). Available at SSRN: https://ssrn.com/abstract=130899 or http://dx.doi.org/10.2139/ssrn.130899

Samuel L. Tiras (Contact Author)

Indiana University - Kelley School of Business ( email )

801 W. Michigan Street
Indianapolis, IN 46202
United States
(317) 274-3420 (Phone)

Clark M. Wheatley

Florida International University ( email )

11200 SW 8th Street
MANGO 337
Miami, FL 33199
United States
305-348-4209 (Phone)

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