Capital Gains Taxes and Stock Reactions to Quarterly Earnings Announcements

41 Pages Posted: 16 May 2000 Last revised: 20 Sep 2012

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Jana Smith Raedy

University of North Carolina at Chapel Hill

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2000

Abstract

This paper examines the impact of capital gains taxes on equity pricing. Examining three-day cumulative abnormal returns for quarterly earning announcements from 1983-1997, we present evidence consistent with shareholders' capital gains taxes affecting stock price responses. To our knowledge, this is the first study to link shareholder taxes and share price responses to earnings releases. The results imply that shares trade at higher (lower) prices when individual investors face incremental taxes (tax savings) created by selling appreciated (depreciated) shares before they qualify for long-term treatment. Unlike prior studies that have focused on price reactions in settings where shareholder taxes are unusually salient (e.g., tax law changes, turn-of-the-year trading, or tax-sensitive transactions), this study finds the imprint of capital gains taxes in a more general setting.

Suggested Citation

Blouin, Jennifer and Smith Raedy, Jana and Shackelford, Douglas A., Capital Gains Taxes and Stock Reactions to Quarterly Earnings Announcements (April 2000). NBER Working Paper No. w7644, Available at SSRN: https://ssrn.com/abstract=228119

Jennifer Blouin

University of Pennsylvania - Accounting Department ( email )

1315 SHDH
3620 Locust Walk
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United States
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Jana Smith Raedy

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-7475 (Phone)
919-962-4727 (Fax)

Douglas A. Shackelford (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3197 (Phone)
919-962-4727 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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