Do investors care about corporate tax?

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153, Godfrey, C., Hillenbrand, C. ORCID: https://orcid.org/0000-0002-2929-5098 and Money, K. (2016) Do investors care about corporate tax? Journal of Corporate Finance, 38. pp. 218-248. ISSN 0929-1199 doi: 10.1016/j.jcorpfin.2016.01.013

Abstract/Summary

This paper conducts a comprehensive examination of the link between corporation tax payment and financial performance in the UK. We find no discernible link between tax rates and stock returns for the UK, no matter how tax payment is measured. This is true throughout the sample period and for both customer-facing and non-customer-facing companies. However, allowing for industry norms and a host of firm characteristics, companies with lower effective tax rates have significantly higher levels of stock market risk. Firms that are reported in the newspapers in a negative way in relation to their level of corporation tax payment experience small negative stock returns, which are partially reversed within a month. However, the initial negative effects and subsequent rebound are both more pronounced for smaller companies. News announcements of the potential involvement of a firm in a corporate inversion (expatriation) result in steeper and much longer-lasting falls in share prices, whereas news stories of a more general nature relating to a firm's tax avoidance or tax payments have little noticeable effect.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/53280
Identification Number/DOI	10.1016/j.jcorpfin.2016.01.013
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting Henley Business School > Leadership, Organisations, Behaviour and Reputation
Publisher	Elsevier
Download/View statistics	View download statistics for this item