Shareholder Wealth Effects of Border Adjustment Taxation

49 Pages Posted: 24 Apr 2017  

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill

Edward L. Maydew

University of North Carolina at Chapel Hill

Date Written: April 21, 2017

Abstract

We examine the effects of a proposed border adjustment tax on the share prices of publicly traded firms. Border adjustment refers to exempting export revenue from taxation while also disallowing deductions for the cost of imports, and has been proposed as a potential U.S. corporate tax reform. The economic effects of the border adjustment tax have proved to be highly controversial, with wide differences of opinion among experts, but little in the way of empirical evidence. To provide empirical evidence on the shareholder wealth effects of border adjustment, we examine equity market reactions on days with high attention paid to the proposed border adjustment tax. We develop a daily index of attention to the border adjustment tax using internet search volume as reflected in Google Trends. We find evidence of significant shareholder wealth effects from the proposed border adjustment tax. Specifically, firms in retail and other import-intensive industries experience significant, negative stock returns on days of high attention to the border adjustment tax. This response is mitigated in firms with foreign operations.

Keywords: Border Adjustment Tax, Border Tax, Corporate Tax, Fundamental Tax Reform

JEL Classification: H25, K34

Suggested Citation

Gaertner, Fabio B. and Hoopes, Jeffrey L. and Maydew, Edward L., Shareholder Wealth Effects of Border Adjustment Taxation (April 21, 2017). Available at SSRN: https://ssrn.com/abstract=2956740 or http://dx.doi.org/10.2139/ssrn.2956740

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Jeffrey L. Hoopes (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Edward L. Maydew

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

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