Did ACRS Really Cause Stock Prices to Fall?
This paper tests the hypothesis that the introduction of the Accelerated Cost Recovery System in 1981 caused a reduction in stock prices by reducing the value of existing capital. A second hypothesis that these depreciation changes benefited firms by increasing the return from new investment is also examined. Stock returns during the period surrounding enactment of this legislation are evaluated with data on capital stock and investment for over 800 firms. The empirical results suggest that neither hypothesis is an important determinant of cross-sectional differences in returns during this period. Differences in stock returns are in the direction predicted by the second hypothesis, but the relationship is not statistically significant. A test of the joint effects of both hypotheses operating simultaneously is supported by the data, but this relationship is also not statistically significant.
|Date of creation:||May 1989|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Alan J. Auerbach & Laurence J. Kotlikoff, 1982.
"Investment versus Savings Incentives: The Size of the Bang for the Buck and the Potential for Self-Financing Business Tax Cuts,"
NBER Working Papers
1027, National Bureau of Economic Research, Inc.
- Alan J. Auerbach & Lawrence Kotlikoff, 1982. "Investment Versus Savings Incentives: The Size of the Bang for the Buck and the Potential for Self-Financing Business Tax Cuts," Cowles Foundation Discussion Papers 652, Cowles Foundation for Research in Economics, Yale University.
- Downs, Thomas W & Tehranian, Hassan, 1988. "Predicting Stock Price Responses to Tax Policy Changes," American Economic Review, American Economic Association, vol. 78(5), pages 1118-1130, December.
- Roger H. Gordon & James R. Hines, Jr. & Lawrence H. Summers, 1987. "Notes on the Tax Treatment of Structures," NBER Chapters,in: The Effects of Taxation on Capital Accumulation, pages 223-258 National Bureau of Economic Research, Inc.
- Fullerton, Don & Henderson, Yolanda Kodrzycki, 1985.
"Long-run Effects of the Accelerated Cost Recovery System,"
The Review of Economics and Statistics,
MIT Press, vol. 67(3), pages 363-372, August.
- Don Fullerton & Yolanda K. Henderson, 1981. "Long-Run Effects of the Accelerated Cost Recovery System," NBER Working Papers 0828, National Bureau of Economic Research, Inc.
- Lyon, Andrew B., 1989. "The effect of the investment tax credit on the value of the firm," Journal of Public Economics, Elsevier, vol. 38(2), pages 227-247, March.
- Andrew B. Lyon, 1988. "The Effect Of The Investment Tax Credit On The Value Of The Firm," NBER Working Papers 2537, National Bureau of Economic Research, Inc.
- Cutler, David M, 1988. "Tax Reform and the Stock Market: An Asset Price Approach," American Economic Review, American Economic Association, vol. 78(5), pages 1107-1117, December. Full references (including those not matched with items on IDEAS)
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