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Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade

53 Pages Posted: 2 Feb 2017 Last revised: 17 Sep 2017

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Alexandre Ziegler

University of Zurich - Department of Banking and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: August 17, 2017

Abstract

Donald Trump’s surprise election shifted expectations: corporate taxes would be lower and trade policies more restrictive. Relative stock prices responded appropriately. High-tax firms and those with large deferred tax liabilities (DTLs) gained; those with significant deferred tax assets from net operating loss carryforwards (NOL DTAs) lost. Domestically focused companies fared better than internationally oriented firms. A price contribution analysis shows that easily assessed consequences (DTLs, NOL DTAs, tax rates) were priced faster than more complex issues (net DTLs, foreign exposure). In sum, the analysis demonstrates that expectations about tax rates greatly impact firm values.

Keywords: Stock returns, event study, corporate taxes, trade policy, corporate interest payments, post-news drift, election surprise, market efficiency, price contribution analysis

JEL Classification: G12, G14, H25, O24

Suggested Citation

Wagner, Alexander F. and Zeckhauser, Richard J. and Ziegler, Alexandre, Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade (August 17, 2017). Journal of Financial Economics (JFE), Forthcoming; Swiss Finance Institute Research Paper No. 17-06; HKS Working Paper No. 17-005. Available at SSRN: https://ssrn.com/abstract=2909835

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
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Centre for Economic Policy Research (CEPR) ( email )

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London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
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Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

Richard J. Zeckhauser

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

Alexandre Ziegler

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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