Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform
53 Pages Posted: 30 Mar 2019 Last revised: 10 Dec 2019
Date Written: July 16, 2019
We study the foreign externalities of the recent U.S. tax reform, commonly known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine foreign firms’ stock returns around key tax reform events. We find significant heterogeneity in market responses by country, industry, and firm. Chinese firms experience large negative returns; especially steel, business equipment, and chemical manufacturers; while the rest of the world experiences positive returns. Firms operating in more differentiated product markets experience positive returns, while firms in financial distress experience negative returns, consistent with the TCJA having competitive repercussions. We also find that firms experiencing decreases in effective tax rates following tax reform experience positive returns. Overall, our results suggest that the TCJA had varied, yet systematic effects on foreign firms’ shareholders’ wealth and the global competitive landscape.
Keywords: Political Economy, Corporate Tax, Competition, Tax Reform, TCJA
JEL Classification: H25, K34
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