Unequal Rewards to Firms: Stock Market Responses to the Trump Election and the 2017 Corporate Tax Reform

American Economic Association Papers and Proceedings, May 2018 Forthcoming

15 Pages Posted: 29 Jan 2018  

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

Date Written: January 12, 2018

Abstract

Massive dollars shuttled back and forth among firms on the twisted path to and passage of the 2017 tax reform. Prices of individual stocks responded to the difference between initial and revised expectations. From the bill’s initiation in the House to final passage, high-tax firms gained significantly, given the dramatic cut from 35% to 21% in the corporate tax rate. Internationally-oriented firms suffered notably, since investors assessed that the surprisingly high repatriation tax outweighed the benefits from territorial taxation. Daily price movements show that the aggregate market responded positively to lower expected taxes.

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

JEL Classification: G12, G14, H25, O24

Suggested Citation

Wagner, Alexander F. and Zeckhauser, Richard J. and Ziegler, Alexandre, Unequal Rewards to Firms: Stock Market Responses to the Trump Election and the 2017 Corporate Tax Reform (January 12, 2018). American Economic Association Papers and Proceedings, May 2018 Forthcoming. Available at SSRN: https://ssrn.com/abstract=3101872

Alexander F. Wagner (Contact Author)

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

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

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

Richard J. Zeckhauser

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)

National Bureau of Economic Research (NBER) ( email )

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

Alexandre Ziegler

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

Plattenstrasse 14
Zürich, 8032
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
307
rank
90,607
Abstract Views
1,033
PlumX