Stock Repurchases and the 2017 Tax Cuts and Jobs Act

Bennett, Benjamin; Thakor, Anjan V.; Wang, Zexi

doi:10.2139/ssrn.3443656

Cited by 10 publications

(11 citation statements)

References 63 publications

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“…Although various articles in the popular business press argue that the TCJA has not improved corporate investment and hiring, there are few rigorous studies on the impact of the TCJA on investment, and the existing evidence seems ambiguous at best (Bennett & Wang, 2021;Cohen & Viswanathan, 2020;Knott, 2019;Kopp et al, 2019). However, both the existing empirical studies and many business press articles agree that the TCJA has contributed to a wave of stock buybacks, which raises questions about whether or to what extent the tax cut impacted investment and other value-added economic activities.…”

Section: Empirical Predictionsmentioning

confidence: 99%

The impact of intrafirm incentive conflicts on the interplay between tax incidence and economic efficiency

Fan¹,

Johnson²,

Pfeiffer

2023

Contemporary Accting Res

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We study how corporate taxation interacts with intrafirm incentive conflicts between shareholders and managers and how this interaction impacts the firm's economic decisions and outcomes. In our model, investment under asymmetric information facilitates entrenchment and rent extraction by the privately informed manager. We show that when the future investment payoff is exogenous, a corporate tax cut increases managerial rents, reduces pre‐tax investment profitability, increases the firm's optimal investment hurdle rate, and reduces investment. When the manager can exert upfront project development effort to increase the expected investment payoff, a tax rate reduction not only encourages more effort but also leads the firm to increase the investment hurdle rate to curtail rents. In equilibrium, a lower tax rate always benefits the manager, but the sensitivity of the project's return to the manager's effort determines whether the firm will increase or decrease investment in response to a tax cut, and whether the firm's resulting pre‐tax profit will increase or decrease. Overall, our study shows that intrafirm incentive conflicts can be an important factor in the interplay between tax incidence and economic efficiency, two central themes in corporate tax policy debates.

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Section: Empirical Predictionsmentioning

confidence: 99%

The impact of intrafirm incentive conflicts on the interplay between tax incidence and economic efficiency

Fan¹,

Johnson²,

Pfeiffer

2023

Contemporary Accting Res

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“…whether firms enact what the tax reforms have intended, increasing spending on capital expenditure and research and development (R&D) to increase a competitive edge, for which prior literature generally lends support (e.g. Cummins et al , 1996; Dobbins and Jacob, 2016; Djankov et al , 2010; Bennett et al , 2019). Admittedly, there is evidence that competing firms without the tax advantage also increase investments in response to the intensified competition.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…For example, after Austria cut its corporate tax rate from 34% to 25% in 2005, the German finance minister accused Austria of being “ambitious and aggressive,” with the latter insisting on fairness and citing pressure from its eastern neighbors who have even lower taxes [1]. Intuitively, lower corporate tax rates not only encourage capital investments by existing firms (Cummins et al , 1996; Djankov et al , 2010; Bennett et al , 2019) but also attract new businesses and foreign investments from abroad (e.g. De Mooij and Ederveen, 2003; Becker et al , 2012; Baccini et al , 2014), thereby enhancing the country's economic productivity and strengthening its competitive edge.…”

Section: Introductionmentioning

confidence: 99%

Thanks, neighbor! Stock market experience around significant European tax cuts

Wang

Macy

2021

EMJB

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PurposeThis paper analyzes the effect of corporate tax cuts on the competitiveness of the tax-cutting countries and neighbor countries.Design/methodology/approachThis study utilizes four significant corporate tax reforms among the OECD countries in Europe that offer a one-time tax cut of 6% or more. The short-term event study approach examines the stock index reactions for both the tax-cutting countries and the other countries. Multivariate fixed-effect regressions are employed to study the cross-sectional variations in the non-tax-cut countries.FindingsThis paper finds positive excess returns for Slovakia and Germany around the tax-cut passage. Multivariate analysis of stock market reactions of the non-tax-cutting countries reveals some evidence supporting both the positive spillover effect and the negative competitive loss effect. More advanced countries are more likely to experience higher abnormal returns, while higher tax countries are more likely to suffer lower abnormal returns. Other factors identified that might have influenced the effect of a foreign tax cut include the existing trade flows with the tax-cutting countries, whether the country has a common currency and the export orientation of the economy.Research limitations/implicationsThe findings are subject to sample-size issues. The lack of results for the other two countries is due to complicating events, as suggested by the further investigation of concurrent news events around the event days.Practical implicationsThe simultaneous analysis of the reform countries and the other countries in the region suggests that policymakers need to consider the relative positioning of their country vs the other countries in terms of economic development and current tax burdens when determining the optimal policy for their country or to respond to the tax policy changes in the other countries.Originality/valueThis study offers empirical evidence regarding the effect of corporate tax changes on competitiveness through the lens of stock markets' reactions, which depend on the net results of the spillover gain vs the competitive loss.

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“…Kalcheva, Plečnik, Tran, and Turkiela (2019) examine investments, and find no effects. Both Bennett, Thakor, and Wang (2019) and Kalcheva, Plečnik, Tran, and Turkiela (2019) find that firms increased share repurchases. Hanlon, Hoopes, and Slemrod (2019) also find increased repurchases and further show that such increases are concentrated in a small number of firms; moreover, they document that firms with the highest ETRs before the TCJA were the most likely to announce increased payments to workers and plans to increase investment.…”

Section: Introductionmentioning

confidence: 97%

“…For such investigations, the advantage of the TCJA over previous reforms is that the law passed so quickly that companies could hardly respond in advance. 3 Studies on the firm behavior consequences of the TCJA include Bennett, Thakor, andWang (2019), Carrizosa, Gaertner, andLynch (2019), Kalcheva, Plečnik, Tran, and Turkiela (2019), Hanlon, Hoopes, andSlemrod (2019), Luna, Schuchard, andStanley (2019), De Simone, McClure, and Stomberg (2019), and Edwards and Hutchens (2020). 4 Some studies, such as Beyer, Downes, Mathis, and Rapley (2019), Olson (2020), Atwood, Downes, Henley, andMathis (2020), andAlbertus, Glover, andLevine (2019) focus specifically on what firms do with repatriated foreign cash.…”

Section: Introductionmentioning

confidence: 99%