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Consequences of the halloween nightmare: analysis of investorsõ response to an overnight tax legislation change in the canadian income trust sector
Author(s) -
Glew Ian A.,
Johnson Lewis D.
Publication year - 2011
Publication title -
canadian journal of administrative sciences / revue canadienne des sciences de l'administration
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 48
eISSN - 1936-4490
pISSN - 0825-0383
DOI - 10.1002/cjas.113
Subject(s) - equity (law) , economics , legislation , monetary economics , cash flow , merge (version control) , event study , business , finance , political science , paleontology , context (archaeology) , biology , computer science , law , information retrieval
On October 31, 2006, the Canadian federal government announced increased taxation of income trusts, beginning in 2011. Using discounted cash flow analysis, we investigated timing of the market adjustment. Energy, utility, and business trust prices dropped by predicted amounts, indicating a rational market response. Following the announcement, however, affected sectors reacted differently: Energy and utility trusts were more likely to merge within their sectors while business trusts became private equity targets. The income trust case is a classic example of a natural event, and our results underscore the efficiency of Canadian capital markets. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.