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THE MARKET REACTION TO THE 1986 TAX OVERHAUL: A STUDY OF THE CAPITAL GAIN TAX CHANGE
Author(s) -
Jang Hweeyong J.
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00370.x
Subject(s) - dividend yield , economics , capital gains tax , capital gain , monetary economics , dividend , yield (engineering) , deferred tax , valuation (finance) , dividend tax , tax credit , tax reform , indirect tax , dividend policy , finance , state income tax , market economy , public economics , gross income , materials science , metallurgy
The Tax Reform Act of 1986 (TRA) eliminated the favorable tax treatment on long‐term capital gains in the US. Using a standard event study… CONTENTS AND ABSTRACTS 111 methodology, this paper examines daily stock return reactions to the tax overhaul. The results show that high dividend yield stocks earned a significant positive abnormal return and low yield stocks a significant negative return during the legislation period. This finding is consistent with the notion that the TRA made the market valuation of stocks shift in favor of high yield stocks.