- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
We examine how tax rates impact investment by corporations in the stock market. We regress changes in intercorporate investment on changes in the various individual and corporate top statutory marginal tax rates (MTRs). We find a significant negative association between changes in individual capital gains MTRs and changes in intercorporate investment, while no such association is evident for changes in either individual ordinary or dividend MTRs. These results support the notion that corporations respond to the after-tax rate of return and/or market efficiency consequences brought about by a change in individual capital gains MTRs. We find a significant positive relation between changes in intercorporate investment and changes in corporate MTRs on ordinary income. These results are consistent with corporations scaling back expansion plans and instead investing free cash flows in equity securities as MTRs increase.
6. Conclusions and limitations
This study investigates whether changes in various individual- and corporate-level statutory tax rates impact the level of investment by corporations in the stock market. While the effects of taxes on business decisions have been examined extensively in the prior literature in the contexts of capital structure, dividend policy, compensation policy, and expansion-related investment, no study of which we are aware considers the impact of tax policy on corporate investment in marketable equity securities. We extend this literature by considering another (non-expansion related) type of corporate investment, marketable equity securities. Using an ordinary least squares regression methodology and a sample of 40 annual observations covering the period 1969 to 2008, we find that changes in individual capital gains MTRs are negatively and significantly related to changes in the aggregate level of corporate investment in other corporations. We find no such association for changes in either ordinary or dividend MTRs for individuals. The results for individuallevel tax rates suggests that corporations respond to the after-tax rate of return and/or market efficiency consequences brought about by a weakening (strengthening) of the lock-in effect once individual capital gains tax rates are lowered (raised).