The Impact of Tax Reforms on EVA in the U.S.: An Empirical Examination

14 Pages Posted: 20 Jul 2021

See all articles by Joseph Boshra

Joseph Boshra

University of Prince Edward Island - Finance; University of Prince Edward Island - Business

Mina Bishara

Misr International University (MIU)

Date Written: July 18, 2021

Abstract

This paper examines the impact of tax reforms on EVA on the non-financial S&P 500 firms by examining how ROIC, WACC, and growth in Invested Capital were affected by the 2017 tax reform through paired sample t-tests. We find that while the tax cut has increased ROIC-WACC, it hindered growth in Invested Capital. Furthermore, due to the distribution of ROIC-WACC across the sample firms being negative on aggregate, the increase in ROIC-WACC, which is still a negative figure, multiplied by a growing capital base, resulted in a decrease in aggregate EVA. This leads to the discussion of a critical invested capital growth rate, at which a given change in ROIC-WACC results in no change in EVA, and a discussion of how different firms have their EVA affected differently depending on their ROIC-WACC and Invested Capital growth rate.

Keywords: Economic Value Added, Corporate Tax Rate, Cost of Capital, Invested Capital, Shareholder Value.

JEL Classification: C33, G11, G30, H25

Suggested Citation

Boshra, Joseph and Bishara, Mina, The Impact of Tax Reforms on EVA in the U.S.: An Empirical Examination (July 18, 2021). Available at SSRN: https://ssrn.com/abstract=3888957 or http://dx.doi.org/10.2139/ssrn.3888957

Joseph Boshra (Contact Author)

University of Prince Edward Island - Finance ( email )

United States

University of Prince Edward Island - Business ( email )

Canada

Mina Bishara

Misr International University (MIU) ( email )

KM 28 Cairo - Ismailia Road (Ahmed Orabi District)
Cairo, 11341
Egypt

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
18
Abstract Views
121
PlumX Metrics