Capital Market Reaction to Anticipated Minority Shareholder's Capital Gains Taxation
Asian Tax Journal Vol. 13 No. 1 (2012), pp. 159-188
Abstract
We analyze tax capitalization effect on policy announcement and withdrawal of listed companies'capital gain taxation for minority shareholder. Additionally we test tax clientele effect of stock price and trading volume by individual investor as marginal investor. According to our results, the stock price response in capital gain taxation announcement day (Jan. 17/18, 2006) shows negative sign and the interaction variables' coefficient between event day dummy variable and dividend yield variable in our test model shows negative sign. But the stock price response in capital gain taxation withdrawal day (Jan. 19, 2006) was not significant and positive sign. It is partially supportive evidence for tax capitalization effect in capital gain taxation for minority shareholder. But the output for tax clientele effect was not significant and inconsistent. This study implements the first empirical test for listed companies' capital gain taxation by event study methodology in Korean capital market. But this result must be interpreted carefully because we couldn't do empirical study when actual capital gain taxation is implemented. Because when the announcement happened, the stock purchaser just expect the decrease of future after tax cash flow in the stock by the possibility of capital gain taxation. They actually ware not burdened with the capital gain tax.
Keywords
- Capital gain tax
- Tax capitalization effect 21