(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

See all articles by Ivalina Kalcheva

Ivalina Kalcheva

University of California, Riverside

James Plecnik

Loyola Marymount University - College of Business Administration

Hai Tran

Loyola Marymount University - Department of Finance and Computer Information Systems

Jason Turkiela

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

Date Written: December 29, 2019

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 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

Kalcheva, Ivalina and Plecnik, James and Tran, Hai and Turkiela, Jason, (Un)intended Consequences? The Impact of the 2017 Tax Cuts and Jobs Act on Shareholder Wealth (December 29, 2019). Available at SSRN: https://ssrn.com/abstract=3478889 or http://dx.doi.org/10.2139/ssrn.3478889

Ivalina Kalcheva (Contact Author)

University of California, Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States

James Plecnik

Loyola Marymount University - College of Business Administration ( email )

Los Angeles, CA 90045
United States

Hai Tran

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States
3103387409 (Phone)

HOME PAGE: http://www.haitranv.com

Jason Turkiela

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

412 Library Drive
Duluth, MN 55812-2496
United States

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