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Investor Reaction to the International Provisions of the Tax Cuts and Jobs Act of 2017

K.C. Lin ^a

Jared A. Moore ^b

David R. Tree ^c

^aCentral Michigan University, USA

^bWestern Washington University, USA

^cOld Dominion University, USA

Advances in Taxation

ISBN: 978-1-83753-361-9, eISBN: 978-1-83753-360-2

Publication date: 16 June 2023

Abstract

We examine the stock market reaction to the Tax Cuts and Jobs Act (TCJA) of 2017 during its enactment process, focusing on its international provisions. Consistent with extant evidence, we find lower returns for high-foreign-activity firms, indicating a negative market reaction to the international provisions overall. Considering specific international provisions, we find that the market reaction was more positive (negative) for firms likely most affected by the shift to a quasi-territorial system for taxing foreign earnings (the transition tax on existing unrepatriated earnings, the tax on global intangible low-taxed income, and/or the base erosion and antiabuse tax) than for other firms. Our findings imply that investors are able to disentangle the economic implications of complex and interactive tax law changes.

Keywords

Acknowledgements

Acknowledgments

We appreciate helpful comments and suggestions from Robert Gary, John Hasseldine (editor), Xiangge Wang, one anonymous reviewer, and participants at the 2022 AAA Southwest Annual Meeting, the 2020 Advances in Accounting Research Conference, the 2019 AAA Annual Meeting, and the 2018 Texas Tech Tax Seminar group. We also thank Brad Mikus for excellent research assistance.

Citation

Lin, K.C., Moore, J.A. and Tree, D.R. (2023), "Investor Reaction to the International Provisions of the Tax Cuts and Jobs Act of 2017", Hasseldine, J. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 30), Emerald Publishing Limited, Leeds, pp. 1-35. https://doi.org/10.1108/S1058-749720230000030001

Publisher

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Emerald Publishing Limited