What does this research mean for the field?

Changes in corporate taxation strongly explain future stock returns and the cost of capital, and uncertainty about future tax burdens leads to higher expected returns and lower firm valuations. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.NEUTRAL.

What question did this study set out to answer?

This research explores how changes in the effective tax rate influence expected equity returns and corporate capital costs.

January 16, 2024Research in EconomicsOpen Access

The role of shifts in the effective tax rate on the cost of equity

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This research explores how changes in the effective tax rate influence expected equity returns and corporate capital costs.
Developed an asset pricing model based on the effective tax rate.
Utilized Spanish macro and market data for estimation.
Assessed average returns across different anomaly portfolios.
Changes in corporate taxation significantly explain future stock returns.
Higher uncertainty about future tax burdens leads to increased expected returns.
This relationship results in reduced firm valuations.

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Implication

Randomized trial evaluates corporate tax changes' effect on equity returns, suggesting significant implications for firm valuation.

Cite This Study

Rojo‐Suárez et al. (2024) studied this question.

synapsesocial.com/papers/6a2146abf6aa648d3a57d45e https://doi.org/10.1016/j.rie.2024.01.005

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The role of shifts in the effective tax rate on the cost of equity

Key Points

Discussion

Implication

Cite This Study

The role of shifts in the effective tax rate on the cost of equity

Key Points

Discussion

Implication

Cite This Study