Tuesday, May 21, 2019
Fabio B. Gaertner (Wisconsin), Jeffrey L. Hoopes (North Carolina) & Area Braden Williams (Texas), Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform:
We examine U.S. tax reform’s effect on foreign firms’ stock returns. Examining key tax reform events, we find little average foreign firm market reaction to tax reform. However, this average effect masks great heterogeneity by country, industry, and firm. Chinese firms experience large negative returns, especially steel manufacturers, while the rest of the world experiences positive returns. Firms in industries that export to the U.S. and firms in financial distress also experience larger negative returns. Overall, our results suggest that U.S. tax reform had varied, yet systematic effects on foreign firms’ shareholders’ wealth and the global competitive landscape.