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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.

Suggested Citation

  • Mahir Binici & Bulent Koksal, 2011. "Do Bank Stockholders Share the Burden of Required Reserve Tax? Evidence from Turkey," Working Papers 1119, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1119
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2011/11-19
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    References listed on IDEAS

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    1. 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.
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    3. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
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    5. Sargent, Thomas & Wallace, Neil, 1985. "Interest on reserves," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 279-290, May.
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    7. Simon T Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 11/36, International Monetary Fund.
    8. 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.
    9. Fabia Aparecida de Carvalho & Cyntia F. Azevedo, 2008. "The incidence of reserve requirements in Brazil: Do bank stockholders share the burden?," Journal of Applied Economics, Universidad del CEMA, vol. 11, pages 61-90, May.
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    Cited by:

    1. Glocker, Christian & Towbin, Pascal, 2015. "Reserve requirements as a macroprudential instrument – Empirical evidence from Brazil," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 158-176.

    More about this item

    Keywords

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

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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