CROSS-BORDER EFFECTS OF A MAJOR TAX REFORM - EVIDENCE FROM THE EUROPEAN STOCK MARKET

We analyze the effects of the major US tax reform of 2017 on European firms. Although foreign firms that are active in the respective country should be directly affected, other foreign firms could also be indirectly affected through competition. With an event study design, we analyze stock market returns in Europe around key dates in the legislative process leading to the Tax Cuts and Jobs Act. We find positive market returns for the European firms that are active in the United States. Moreover, our results suggest an indirect effect through competition. European firms that face strong competition from US firms in their domestic markets exhibit significantly lower returns.