Did the 1986 tax reform act affect market reactions to stock splits? A test of the tax-option hypothesis

Manjeet Dhatt, Yong H. Kim, Sandip Mukherji

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

This paper tests the prediction of the tax-option hypothesis that the market impact of stock splits would be reduced by the 1986 Tax Reform Act which eliminated the difference between long- and short-term capital gains tax rates. The results show significant excess returns on stock split announcement and ex-days even after 1986. The announcement and ex-day excess returns are similar in different periods before and after the Act. Further, there is no significant relationship between announcement excess returns and increase in returns volatility following splits. These findings are inconsistent with the tax-option hypothesis.

Original languageEnglish (US)
Pages (from-to)249-271
Number of pages23
JournalFinancial Review
Volume32
Issue number2
DOIs
StatePublished - May 1997

Fingerprint Dive into the research topics of 'Did the 1986 tax reform act affect market reactions to stock splits? A test of the tax-option hypothesis'. Together they form a unique fingerprint.

Cite this