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Do Bank Stockholders Share the Burden of Required Reserve Tax? Evidence from Turkey

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  • Mahir Binici
  • Bulent Koksal

Abstract

This study examines whether bank shareholders bear the burden of required reserves tax by analyzing the reaction of banks’ stock returns to the changes in the required reserve ratio. Results show that increases in reserve requirements significantly lower bank returns implying that shareholders share a portion of the required reserve tax. Required reserves changes are partially predicted by investors, and increases and decreases in required reserve rates have an asymmetric effect on stock returns. In addition, large and public banks bear a larger share of the tax, and the remuneration of reserves has important implications for the tax burden. Finally, some heterogeneity across banks exists as reflected by differences in the signs and magnitudes of the estimated coefficients.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1119.

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Date of creation: 2011
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Handle: RePEc:tcb:wpaper:1119

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Keywords: Stock returns; required reserves tax; monetary policy; tax incidence; Istanbul Stock Exchange (ISE); Turkey;

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  1. Dwyer, Gerald Jr. & Saving, Thomas R., 1986. "Government revenue from money creation with government and private money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 239-249, March.
  2. Romer, David, 1985. "Financial intermediation, reserve requirements, and inside money: A general equilibrium analysis," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 175-194, September.
  3. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
  4. Fabia A. de Carvalho & Cyntia F. Azevedo, 2008. "The Incidence of Reserve Requirements in Brazil: Do Bank Stockholders Share the Burden?," Working Papers Series 160, Central Bank of Brazil, Research Department.
  5. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  6. Simon Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 11/36, International Monetary Fund.
  7. Kolari, James & Mahajan, Arvind & Saunders, Edward M., 1988. "The effect of changes in reserve requirements on bank stock prices," Journal of Banking & Finance, Elsevier, vol. 12(2), pages 183-198, June.
  8. Osborne, Dale K. & Zaher, Tarek S., 1992. "Reserve requirements, bank share prices, and the uniqueeness of bank loans," Journal of Banking & Finance, Elsevier, vol. 16(4), pages 799-812, August.
  9. Sargent, Thomas & Wallace, Neil, 1985. "Interest on reserves," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 279-290, May.
  10. Dann, Larry Y & James, Christopher M, 1982. " An Analysis of the Impact of Deposit Rate Ceilings on the Market Values of Thrift Institutions," Journal of Finance, American Finance Association, vol. 37(5), pages 1259-75, December.
  11. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  12. Black, Fischer, 1975. "Bank funds management in an efficient market," Journal of Financial Economics, Elsevier, vol. 2(4), pages 323-339, December.
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