Investor Valuations of Japan's Adoption of a Territorial Tax Regime: Quantifying the Direct and Competitive Effects of International Tax Reform
Despite an extensive literature on the normative implications of different international tax regimes and an empirical literature addressing individual specific predictions, there exists little evidence encompassing the broad range of effects of taxing corporations' foreign-source income on a worldwide or territorial basis. This paper takes a more comprehensive quantitative approach by examining stock market reactions surrounding three events over the course of which Japan's 2009 adoption of a dividend exemption system was developed into proposed law. Using an event study methodology which leverages individual firm characteristics and accounts for contemporaneous financial market developments, we find that Japanese firms with less foreign exposure and fewer opportunities for tax avoidance experienced relatively larger abnormal returns, while differences in firms' foreign and domestic effective tax rates accounted for an aggregate capitalization effect of ¥4.1 trillion. We attribute these gains to a combination of enhanced opportunities for international expansion among smaller domestic firms, direct tax savings on official estimates of existing undistributed foreign earnings, and general cultural biases against tax planning in an environment of largely unchanged anti-abuse provisions. Spillover effects in the U.S. and German markets (through tax competition or firm competitiveness) appear insignificant.
|Date of creation:||01 Aug 2013|
|Date of revision:||15 Sep 2014|
|Contact details of provider:|| Web page: http://www.lebow.drexel.edu/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles J. Corrado, 2011. "Event studies: A methodology review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(1), pages 207-234, 03.
- Bradley, Sebastien, 2012. "Investor Responses to Dividends Received Deductions: Rewarding Multinational Tax Avoidance?," School of Economics Working Paper Series 2012-10, LeBow College of Business, Drexel University.
- Hanlon, Michelle & Slemrod, Joel, 2009. "What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 126-141, February.
- James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
- Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
- Edgerton, Jesse, 2010. "Investment incentives and corporate tax asymmetries," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 936-952, December.
- HASEGAWA Makoto & KIYOTA Kozo, 2013.
"The Effect of Moving to a Territorial Tax System on Profit Repatriations: Evidence from Japan,"
13047, Research Institute of Economy, Trade and Industry (RIETI).
- Makoto Hasegawa & Kozo Kiyota, 2015. "The Effect of Moving to a Territorial Tax System on Profit Repatriation: Evidence from Japan," GRIPS Discussion Papers 15-09, National Graduate Institute for Policy Studies.
- Makoto Hasegawa & Kozo Kiyota, 2015. "The Effect of Moving to a Territorial Tax System on Profit Repatriation: Evidence from Japan," Keio-IES Discussion Paper Series 2015-008, Institute for Economics Studies, Keio University.
- Michael P Devereux, 2008.
"Taxation of Outbound Direct Investment: Economic Principles and Tax Policy Considerations,"
0824, Oxford University Centre for Business Taxation.
- Michael P. Devereux, 2008. "Taxation of outbound direct investment: economic principles and tax policy considerations," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 698-719, winter.
- Peter Egger & Valeria Merlo & Martin Ruf & Georg Wamser, 2012.
"Consequences of the New UK Tax Exemption System: Evidence from Micro-level Data,"
CESifo Working Paper Series
3942, CESifo Group Munich.
- Peter Egger & Valeria Merlo & Martin Ruf & Georg Wamser, 2015. "Consequences of the New UK Tax Exemption System: Evidence from Micro‐level Data," Economic Journal, Royal Economic Society, vol. 125(589), pages 1764-1789, December.
- Steven M. Fazzari & Bruce C. Petersen, 1993. "Working Capital and Fixed Investment: New Evidence on Financing Constraints," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 328-342, Autumn.
- Binder, John J, 1998. "The Event Study Methodology since 1969," Review of Quantitative Finance and Accounting, Springer, vol. 11(2), pages 111-137, September.
- Desai, Mihir A. & Hines, James R. Jr., 2003. "Evaluating International Tax Reform," National Tax Journal, National Tax Association, vol. 56(3), pages 487-502, September.
- Corrado, Charles J. & Truong, Cameron, 2008. "Conducting event studies with Asia-Pacific security market data," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 493-521, November.
- Mihir A Desai & Dhammika Dharmapala, 2009.
"Corporate Tax Avoidance and Firm Value,"
The Review of Economics and Statistics,
MIT Press, vol. 91(3), pages 537-546, August.
- Heitor Almeida & Murillo Campello, 2007. "Financial Constraints, Asset Tangibility, and Corporate Investment," Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1429-1460, 2007 12.
- Tsutomu Miyagawa & Shoichi Hisa, 2013. "Estimates Of Intangible Investment By Industry And Productivity Growth In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 64(1), pages 42-72, 03.
- Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
- Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
- Corrado, Charles J. & Zivney, Terry L., 1992. "The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 465-478, September.
- Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
- A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
- Bert Brys & Stephen Matthews & Jeffrey Owens, 2011. "Tax Reform Trends in OECD Countries," OECD Taxation Working Papers 1, OECD Publishing.
- Estelle P. Dauchy, 2013. "The Efficiency Cost of Asset Taxation in the U.S. after Accounting for Intangible Assets," Working Papers w0199, Center for Economic and Financial Research (CEFIR).
When requesting a correction, please mention this item's handle: RePEc:ris:drxlwp:2013_002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard C. Barnett)
If references are entirely missing, you can add them using this form.