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Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade


Wagner, Alexander; Zeckhauser, Richard J; Ziegler, Alexandre (2018). Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade. Journal of Financial Economics, 130(2):428-451.

Abstract

Donald Trump’s surprise election shifted expectations: corporate taxes would be lower and trade policies more restrictive. Relative stock prices responded appropriately. High-tax firms and those with large deferred tax liabilities (DTLs) gained; those with significant deferred tax assets from net operating loss carryforwards (NOL DTAs) lost. Domestically focused companies fared better than internationally oriented firms. A price contribution analysis shows that easily assessed consequences (DTLs, NOL DTAs, tax rates) were priced faster than more complex issues (net DTLs, foreign exposure). In sum, the analysis demonstrates that expectations about tax rates greatly impact firm values.

Abstract

Donald Trump’s surprise election shifted expectations: corporate taxes would be lower and trade policies more restrictive. Relative stock prices responded appropriately. High-tax firms and those with large deferred tax liabilities (DTLs) gained; those with significant deferred tax assets from net operating loss carryforwards (NOL DTAs) lost. Domestically focused companies fared better than internationally oriented firms. A price contribution analysis shows that easily assessed consequences (DTLs, NOL DTAs, tax rates) were priced faster than more complex issues (net DTLs, foreign exposure). In sum, the analysis demonstrates that expectations about tax rates greatly impact firm values.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 November 2018
Deposited On:07 Mar 2019 09:17
Last Modified:25 Sep 2019 00:24
Publisher:Elsevier
ISSN:0304-405X
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jfineco.2018.06.013
Related URLs:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2909835
https://www.sciencedirect.com/science/article/pii/S0304405X18301739 (Publisher)
Other Identification Number:merlin-id:14535

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