Cross-border Effects of a Major Tax Reform - Evidence from the European Stock Market
38 Pages Posted: 19 Apr 2019 Last revised: 22 Apr 2019
Date Written: March 27, 2019
We analyze the effect of a major tax reform on foreign 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. On the evening of December 15th, 2017, the final version of the U.S. “Tax Cuts and Job Act” was published. With an event study design, we show that following the announcement, the European market overall exhibits positive abnormal returns. We find particularly positive market returns for the European firms that generate revenues in the United States. Our results also suggest that the European firms that face strong competition from U.S. firms exhibit significantly lower returns.
Keywords: U.S. tax reform, stock returns, event study, cross-border effects, international competition
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