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Mar 30, 2019

Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform


We study foreign externalities of U.S. tax reform. Specifically, we examine foreign firms’ stock returns around key tax reform events. We find significant heterogeneity in market responses by country, industry, and firm. Chinese firms experience large negative returns, especially steel manufacturers, while the rest of the world experiences positive returns. Firms operating in more differentiated product markets experience positive returns, while firms in financial distress experience negative returns, consistent with U.S. tax reform having competitive repercussions. We also find that firms experiencing decreases in effective tax rates following tax reform experience positive 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.


Gaertner, Fabio B. and Hoopes, Jeffrey L. and Williams, Braden, Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform (March 30, 2019). Kenan Institute of Private Enterprise Research Paper No. 19-15. Available at SSRN: http://ssrn.com/abstract=3363006

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