Abstract
Purpose – This study tries to investigate the capital market reaction to the corporate tax reduction announcement (37.5% from 40%) in Bangladesh for publicly listed Banking, Insurance and Financial Institutions of 2017-18. Methodology – This study applied an event study approach to identify any significant average abnormal returns as well as cumulative average abnormal returns of all the publicly listed Banks, Insurances and Financial institutions around the announcement period. Findings – Insignificant average abnormal return (AAR) experienced in case of Banking and Insurance industry on event day, except the financial institutions which have generated a statistically significant abnormal negative return on announcement day. The combined AAR of all three sectors has also generated statistically insignificant return around event windows which suggest that investors did not consider tax reduction news as valuable information for investment decision nor considering it as an essential factor of share value. Limitation – The study did not consider any possible extraneous variable that could result in insignificant reactions. Practical Implication – The findings of this research would considerably contribute to the financial and economic policy formulation while taken into consideration the possible impact of the policy over the capital market of Bangladesh. Originality – This study makes a considerable input to the research in the area of taxes linked to the behavioural finance applying the unique variable of investor’s reactions.
Highlights
If investors properly admit and interpret the link between the corporate tax reduction and the potential revenue return and risk vulnerability of banking, insurance and financial institutions, it should be displayed around the announcement period in their equity earnings
The association linking tax policy and financial securities is one of the arguable issues in the finance and capital market research ever since (Modigliani & Miller, 1958) prominent research paper with reservations proved that corporate taxes have an influence on firms’ value, the model have been extensively developed by integrating corporate taxation in analyzing the effect of tax rate revision on both firms and equity value
This study analyses the investor’s responses towards the corporate tax reduction proposal for the Banking, Insurance and Financial Institution sectors of Bangladesh in financial year 2017-18.The stock return of twenty days around the event date of 100 publicly listed firms in three segments of industry namely Banking, Insurance and Financial institution are considered for the study
Summary
The key intention of this paper is to study the degree to which corporate tax rate deduction by 2.5 per cent for Banks, Insurance and FI’s in national budget of Bangladesh 2018-19 Cutler (1988), Downs and Tehranian (1988) respectively evaluate the consequential effect of the 1986 tax alteration and the 1981 Economic Recovery tax revision on equity value Their findings exhibit that 1981 tax reform had no consequence on equity value whereas the outcome of the Tax Revision of 1986 on stock prices was indecisive (Alshammari, 2012)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
