Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform

49 Pages Posted: 30 Mar 2019 Last revised: 15 May 2019

See all articles by Fabio B. Gaertner

Fabio B. Gaertner

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

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Braden Williams

University of Texas at Austin - Department of Accounting

Date Written: March 30, 2019

Abstract

We study foreign externalities of U.S. tax reform. 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 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 U.S. tax reform 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 U.S. tax reform 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

Suggested Citation

Gaertner, Fabio B. and Hoopes, Jeffrey L. and Williams, Braden, Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform (March 30, 2019). Kenan Institute of Private Enterprise Research Paper No. 19-15. Available at SSRN: https://ssrn.com/abstract=3363006 or http://dx.doi.org/10.2139/ssrn.3363006

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 - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Braden Williams

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

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