Don't Go on Holiday in August! Market Reaction to an Unexpected Windfall Tax on Banks

21 Pages Posted: 22 Sep 2023

See all articles by Antonio De Vito

Antonio De Vito

Alma Mater Studiorum University of Bologna

Livia Pancotto

University of Strathclyde

Salvatore Perdichizzi

University of Padua - Department of Economics and Management

Alessio Reghezza

European Central Bank (ECB)

Abstract

Using an event study approach, this paper investigates the stock market reaction to the unexpected announcement of a windfall tax on banks’ extra profits. We show that investors negatively perceive the introduction of the tax, with more pronounced reactions for banks expected to be more highly burdened. This evidence is corroborated when we investigate the cross-sectional determinants of banks’ returns and cumulative abnormal returns. Overall, the results suggest that investors negatively price excess profits taxes and contribute to our understanding of how stock markets respond to tax policy changes.

Keywords: G14, G21, H22, H25, H26, M41

Suggested Citation

De Vito, Antonio and Pancotto, Livia and Perdichizzi, Salvatore and Reghezza, Alessio, Don't Go on Holiday in August! Market Reaction to an Unexpected Windfall Tax on Banks. Available at SSRN: https://ssrn.com/abstract=4575194

Antonio De Vito (Contact Author)

Alma Mater Studiorum University of Bologna ( email )

Bologna
Italy

Livia Pancotto

University of Strathclyde ( email )

16 Richmond Street
Glasgow 1XQ, Scotland G1 1XQ
United Kingdom

Salvatore Perdichizzi

University of Padua - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

Alessio Reghezza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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