Donald Trump’s surprise election shifted expectations: corporate taxes would be lower and trade policies more restrictive. Relative stock prices responded appropriately. High-tax firms and those with large deferred tax liabilities (DTLs) gained; those with significant deferred tax assets from net operating loss carryforwards (NOL DTAs) lost. Domestically focused companies fared better than internationally oriented firms. A price contribution analysis shows that easily assessed consequences (DTLs, NOL DTAs, tax rates) were priced faster than more complex issues (net DTLs, foreign exposure). In sum, the analysis demonstrates that expectations about tax rates greatly impact firm values.
Wagner, Alexander F. and Zeckhauser, Richard J. and Ziegler, Alexandre, Company Stock Price Reactions to the 2016 Election Shock: Trump, Taxes and Trade (August 17, 2017). Journal of Financial Economics (JFE), Volume 130, Issue 2, November 2018, Pages 428-451; Swiss Finance Institute Research Paper No. 17-06; HKS Working Paper No. 17-005. Available at SSRN: https://ssrn.com/abstract=2909835