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Tax Policy and Shareholder Wealth: Some Evidence from the Tax Reform Act of 1986

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  • Cox, Raymond A K
  • Kleiman, Robert T
  • Stout, R Gene

Abstract

This paper presents additional evidence regarding the stock market reaction to the Tax Reform Act (TRA) of 1986. A prediction model of the change in the profitability index for thirty-three industry groups as a result of the TRA is developed. This prediction model is then tested by examining abnormal industry returns surrounding the announcement of the TRA. The authors find that the distribution of the predicted changes in industry equity investment returns, which suggests that the stock market was efficient in the pricing of news related to the TRA of 1986. Copyright 1994 by MIT Press.

Suggested Citation

  • Cox, Raymond A K & Kleiman, Robert T & Stout, R Gene, 1994. "Tax Policy and Shareholder Wealth: Some Evidence from the Tax Reform Act of 1986," The Financial Review, Eastern Finance Association, vol. 29(2), pages 249-273, May.
    • Handle: RePEc:bla:finrev:v:29:y:1994:i:2:p:249-73
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    Cited by:

    1. Casey, K. Michael & Dickens, Ross N., 2000. "The effects of tax and regulatory changes on commercial bank dividend policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(2), pages 279-293.

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