Ring-Fencing Digital Corporations: Investor Reaction to the European Commission’s Digital Tax Proposals

50 Pages Posted: 6 Dec 2019 Last revised: 22 Mar 2021

See all articles by Daniel Klein

Daniel Klein

University of Mannheim - Accounting and Taxation

Christopher Ludwig

University of Mannheim; ZEW – Leibniz Centre for European Economic Research

Christoph Spengel

Centre for European Economic Research (ZEW)

Date Written: October 1, 2019

Abstract

We study the effect of digital tax measures on firm value. By employing an event study methodology, we analyze investor reaction to the European Commission’s proposals on the taxation of digital corporations. Examining the stock returns of potentially affected corporations surrounding the draft directives’ release, we find a significant abnormal capital market reaction of -0.692 percentage points. The investor reaction is more pronounced for firms that engage more actively in tax avoidance, have a higher profit shifting potential, and for those with higher exposure to the EU. The market value of digital and innovative corporations decreased by at least 52 billion euro in excess of the regular market movement during the event window. Overall, our study reveals that expectations about ringfencing digital tax measures impact firm values.

Keywords: digital taxation, corporate tax, digital economy, event study

JEL Classification: H25, H26, K34, G14

Suggested Citation

Klein, Daniel and Ludwig, Christopher and Spengel, Christoph, Ring-Fencing Digital Corporations: Investor Reaction to the European Commission’s Digital Tax Proposals (October 1, 2019). ZEW - Centre for European Economic Research Discussion Paper No. 19-050, Available at SSRN: https://ssrn.com/abstract=3498183 or http://dx.doi.org/10.2139/ssrn.3498183

Daniel Klein (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Christopher Ludwig

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

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