Cross-border Effects of a Major Tax Reform - Evidence from the European Stock Market

Abstract

We analyze the effects of the major U.S. tax reform of 2017 on European firms. While foreign firms that are active in the respective country should be directly affected, other foreign firms could also be indirectly affected through competition. With an event study design, we analyze stock market returns in Europe around key dates in the legislative process leading to the TCJA. We find positive market returns for the European firms that are active in the United States. Moreover, our results suggest an indirect effect through competition. European firms that face strong competition from U.S. firms in their domestic markets exhibit significantly lower returns.

Keywords: U.S. tax reform, stock returns, event study, cross-border effects, international competition

JEL Classification: G12, G14, H25