How Are Taxes Moving Stock Markets and Social Media? : Essays on Reactions to Major Tax Reforms and Corporate Tax Avoidance
This cumulative dissertation consists of three separate essays contributing to the literature on major tax reforms and corporate tax avoidance. The focus lies on the analysis of stock market and social media reactions. The first essay provides a comprehensive literature review on the growing strand of tax-related event studies that examine investor responses to corporate tax avoidance and major tax reforms. Overall, the review emphasizes the value relevance of corporate taxes as it shows that stock market investors incorporate tax-related information into stock prices. Moreover, it illustrates that investors evaluate costs and benefits of tax events in a highly differentiated manner. In addition to structuring and summarizing the tax event studies, the review also discusses methodological issues and trends. The second essay is an event study that examines the stock market reaction to a tax reform announcement in the United Kingdom during the COVID-19 pandemic. The results show that governments face tradeoffs in stabilizing the economy in the recovery phase of a crisis. While struggling firms benefit from assured government support, innovative and diversified firms suffer from an announced tax hike, which jeopardizes future growth. However, the situation changes when excessive public debt lead to macro-financial risk. In this case, restoring fiscal stability becomes most important for investors. The third essay uses a major tax avoidance scandal, namely the LuxLeaks, to analyze how corporate tax avoidance is perceived on social media. The results are ambiguous and no strong social media (and news media) reaction regarding companies involved in the scandal is found. Therefore, the LuxLeaks scandal does not seem to cause social media (and news media) tension for LuxLeaks companies. This finding is somewhat surprising, but it confirms results of previous literature, according to which reputational costs of corporate tax avoidance are rather low.
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