THE SECURITY MARKET IMPACT OF TAX LAW CHANGES RELATED TO THE CORE DEPOSIT INTANGIBLE, GOODWILL, AND OTHER ACQUIRED INTANGIBLES OF FINANCIAL INSTITUTIONS.

摘要

This study examines the market response to judicial and legislative events affecting the tax status of acquired intangible assets, including the core deposit intangible and goodwill, held by financial institutions. The events under study began in early 1988 and continue through August 10, 1993 when the Omnibus Budget Reconciliation Act of 1993 was signed into law. The judicial and legislative events are classified as either "good news" or "bad news" based upon the expected effect of the event on prices of financial institutions' common stocks.; The firms included in this study are those that engaged in taxable acquisitions, amortized the core deposit intangible and other intangibles acquired in those acquisitions, and disclosed this information in their financial statements.; Binder's (1985) Multivariate Regression Model is used in conjunction with a seemingly unrelated regressions approach so that heteroscedasticity across equations and contemporaneous dependence of the disturbances can be explicitly incorporated into the hypothesis tests. I examined whether there was a stock price response to the judicial and legislative events. The initial analysis was conducted on the stock prices of firms that have intangible assets, but did not consider the amounts of core deposit intangible and other purchased intangibles held by each firm. Subsequent analysis incorporated firm specific measures of tax exposure to these judicial and legislative events, and examined the relation between these measures and excess returns.; The results for the judicial decisions examined are variable and generally inconsistent with the hypothesis that the market viewed these decisions as significant events. The results for the Supreme Court decision show some promise that the market viewed this decision as a significant event and considered amounts of CDI held by firms as important explanatory variables in determining excess returns, but are likely confounded by downward stock price movements within the industry. No statistically significant effects of any of the legislative events were detected. This result may indicate that information leaks occurred and/or the market adjusted its expectations with respect to the legislation before the events examined in this study occurred. Both of these are likely, given the public deliberation and press attention paid to the legislation. If the market anticipated the legislative events, there would be no recorded market response on the event dates examined.