Company stock price reactions to the 2016 election shock: Trump, taxes, and trade

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 n...

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Bibliographic Details
Published inJournal of financial economics Vol. 130; no. 2; pp. 428 - 451
Main Authors Wagner, Alexander F., Zeckhauser, Richard J., Ziegler, Alexandre
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.11.2018
Elsevier Sequoia S.A
Subjects
Corporate interest payments
Corporate taxes
Deferred income taxes
Election surprise
Elections
Event study
International trade
Market efficiency
Post-news drift
Price contribution analysis
Prices
Stock prices
Stock returns
Stocks
Studies
Tax rates
Taxation
Taxes
Trade policy
United States > US
Election surprise
Corporate taxes
Corporate interest payments
G12
H25
Post-news drift
G14
Price contribution analysis
O24
Trade policy
Stock returns
Market efficiency
Event study
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Summary: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.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2018.06.013