The effect of tax regulation on firm value: the Turkish case of Allowance for Corporate Equity (ACE) regulation


Ozdamar M., Tanyeri B., Akdeniz L.

Applied Economics Letters, vol.28, no.4, pp.264-268, 2021 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 28 Issue: 4
  • Publication Date: 2021
  • Doi Number: 10.1080/13504851.2020.1751797
  • Journal Name: Applied Economics Letters
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, CAB Abstracts, EconLit, Geobase, Public Affairs Index, Veterinary Science Database, DIALNET
  • Page Numbers: pp.264-268
  • Keywords: Allowance for corporate equity, event study, tax regulation, tax shield for equity
  • TED University Affiliated: Yes

Abstract

Investors ex-ante price the tax shield that Turkish firms would enjoy and react positively to the introduction of a legislation that provides a deduction for new equity issues. Not all firms are equally affected by the equity tax shield. Cumulative abnormal returns prove significantly higher for levered firms who may find it easier to switch from debt to equity financing and for firms that have income to shield from tax. Furthermore, the most levered firms and the firms with the highest income, whom investors ex-ante expect to benefit most from the regulation, do indeed issue more equity to take advantage of the tax benefits of the new regulation.