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Company stock price reactions to the 2016 election shock: Trump, taxes, and trade

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  • Wagner, Alexander F.
  • Zeckhauser, Richard J.
  • Ziegler, Alexandre

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, tax rates) were priced faster than more complex issues (net DTLs, foreign exposure). In sum, the analysis demonstrates that expectations about tax rates greatly impact firm values.

Suggested Citation

  • Wagner, Alexander F. & Zeckhauser, Richard J. & Ziegler, Alexandre, 2018. "Company stock price reactions to the 2016 election shock: Trump, taxes, and trade," Journal of Financial Economics, Elsevier, vol. 130(2), pages 428-451.
    • Handle: RePEc:eee:jfinec:v:130:y:2018:i:2:p:428-451
    DOI: 10.1016/j.jfineco.2018.06.013
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock returns; Event study; Corporate taxes; Trade policy; Corporate interest payments; Post-news drift; Election surprise; Market efficiency; Price contribution analysis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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