(Un)intended Consequences? The Impact of the 2017 Tax Cuts and Jobs Act on Shareholder Wealth
60 Pages Posted: 11 Nov 2019 Last revised: 2 Jan 2020
Date Written: December 29, 2019
We study the stock market reactions to the Tax Cuts and Jobs Act (TCJA), the most significant structural U.S. tax reform in over 30 years. In line with the stated intent of TCJA proponents, we find that the Act benefited highly taxed firms while it hindered firms with international operations as well as firms with high interest expense and tax losses. However, counter to claims that the TCJA would quickly spur economic growth, we find that financially constrained and high growth opportunity firms did not benefit. Rather, market participants anticipate that most of the TCJA’s benefits will be passed on to shareholders via higher corporate payouts. We confirm these market expectations by documenting that firms did increase payouts via repurchases after the TCJA, but did not increase their corporate investments.
Keywords: Stock returns, Taxes, Event study, Tax Cuts and Jobs Act
JEL Classification: G12, G14, H25, 024
Suggested Citation: Suggested Citation