Market reactions of multinationals to the OECD BEPS Action Plan

Abstract

This paper investigates the equity market reactions to the publication of the OECD BEPS Action Plan. We examine abnormal stock returns for firms incorporated and traded on the stock market in 36 OECD member states for various event dates during the developmental phase of the OECD BEPS Action Plan. Overall, we find a negative market reaction of multinational companies across the relevant events, which suggests that the additional tax costs from limiting tax avoiding behaviour outweigh the benefits such as more transparency, better international tax dispute resolution, etc related to the introduction of the OECD BEPS Action Plan. The conclusion of the Multilateral Instrument (MLI) results in the most negative cumulative reaction. US corporations show a significant negative mean return across all events, but we find less pronounced evidence for market reactions across the European Union (EU). We find that more tax avoiding firms have stronger negative reactions to the events than less tax avoiding firms. Additionally, we show that there are some spill over effects onto the equity markets for purely domestic firms. We provide first evidence as to how investors reacted to the introduction of the OECD BEPS Action Plan and contribute to the literature by further investigating the association between tax avoidance and stock return.

Keywords: Market reaction, OECD BEPS action plan, tax avoidance

JEL Classification: F23, G14, H22, H25