Finance seminar with Ruediger Fahlenbrach, Ecole Polytechnique Fédérale de Lausanne (EPFL)

The Department of Finance is proud to announce the upcoming Finance seminar with Ruediger Fahlenbrach, Ecole Polytechnique Fédérale de Lausanne (EPFL).

Ruediger Fahlenbrach will present: 

"Capital gains taxation and inefficient block ownership"

Authors:

Ruediger Fahlenbrach
Dirk Jenter
Eric Nowak

Abstract:

We analyze plausibly exogenous changes in corporate minority block ownership in Germany and their consequences for firm value. In December 1999, Germany passed a tax reform that repealed the corporate capital gains tax of approximately 50% on domestic corporate holdings. The tax reform caused many German firms, in particular banks and insurance firms, to sell their minority equity stakes in other publicly listed German firms, altering the network of corporate holdings and corporate control in Germany. We ask whether the realization-based taxation of corporate capital gains discouraged value enhancing asset reallocation by creating a “lock-in” effect prior to the reform. If corporations had a sub-optimal set of shareholders prior to the reform, we would expect their value to increase after the tax reform We find supportive evidence of this conjecture.

Location: