Discussion Paper Details

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Title: Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade

Author(s): Alexander F Wagner, Richard Zeckhauser and Alexandre Ziegler

Publication Date: February 2017

Keyword(s): corporate interest payments, corporate taxes, election surprise, event study, post-news drift, Stock returns and trade policy

Programme Area(s): Financial Economics

Abstract: 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, cash tax rates) were priced faster than more complex issues (net DTLs, GAAP tax rates, foreign exposure). High-tax firms outperformed (underperformed) on days when the media attended more (less) to corporate taxes.

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Bibliographic Reference

Wagner, A, Zeckhauser, R and Ziegler, A. 2017. 'Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade'. London, Centre for Economic Policy Research.