(Un)intended Consequences? The Impact of the 2017 Tax Cuts and Jobs Act on Shareholder Wealth

73 Pages Posted: 11 Nov 2019 Last revised: 7 Jul 2020

See all articles by Ivalina Kalcheva

Ivalina Kalcheva

University of Texas at San Antonio - Department of Finance

James Plecnik

Loyola Marymount University - College of Business Administration

Hai Tran

Loyola Marymount University - Department of Finance

Jason Turkiela

University of Oklahoma; University of Minnesota - Duluth - Labovitz School of Business and Economics (LSBE)

Date Written: March 23, 2020

Abstract

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. However, the Act hindered firms with international operations as well as firms with high interest expense and tax losses. 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

Kalcheva, Ivalina and Plecnik, James and Tran, Hai and Turkiela, Jason and Turkiela, Jason, (Un)intended Consequences? The Impact of the 2017 Tax Cuts and Jobs Act on Shareholder Wealth (March 23, 2020). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3478889 or http://dx.doi.org/10.2139/ssrn.3478889

Ivalina Kalcheva

University of Texas at San Antonio - Department of Finance

San Antonio, TX 78249
United States

James Plecnik (Contact Author)

Loyola Marymount University - College of Business Administration ( email )

Los Angeles, CA 90045
United States

Hai Tran

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

Jason Turkiela

University of Minnesota - Duluth - Labovitz School of Business and Economics (LSBE) ( email )

412 Library Drive
Duluth, MN 55812-2496
United States

University of Oklahoma ( email )

Norman, OK 73019
United States

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