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).
