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The effect of Germany's repeal of the corporate capital gains tax: Evidence from the disposal of corporate minority holdings

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  • Rünger, Silke

Abstract

Germany's repeal of the corporate capital gains tax for the disposal of domestic holdings was expected to substantially change the system of corporate network holdings and corporate control. Based on a general divestiture model, we show that the probability of a disposal increased after the tax reform. Using a unique data set with no need to proxy for the disposal of corporate equity holdings, we analyze 354 German minority holdings over the period 1999-2007. We find significant higher disposal rates for 2002, the year the reform became effective. Further analyses reveal that this effect can be attributed to non-listed parent companies outside the financial sector, i.e. companies mainly ignored in prior research. Thus, our results also help to explain why prior research using event studies failed to detect a widespread market reaction of German firms.

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  • Rünger, Silke, 2012. "The effect of Germany's repeal of the corporate capital gains tax: Evidence from the disposal of corporate minority holdings," arqus Discussion Papers in Quantitative Tax Research 126, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:126
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    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. Seida, Jim A. & Wempe, William F., 2000. "Do capital gain tax rate increases affect individual investors' trading decisions?," Journal of Accounting and Economics, Elsevier, vol. 30(1), pages 33-57, August.
    3. Joel Slemrod, 1982. "Stock Transactions Volume and the 1978 Capital Gains Tax Reduction," Public Finance Review, , vol. 10(1), pages 3-16, January.
    4. Prowse, Stephen D, 1992. "The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, vol. 47(3), pages 1121-1140, July.
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    More about this item

    Keywords

    corporate capital gains; lock-in effect; corporate equity holdings; Germany;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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