The Link Between Corporate Tax Policies and Shareholder Value

Abstract

This study investigates the relationship between corporate tax policies and shareholder value using a mixed-methods approach that integrates econometric modeling, event study analysis, and qualitative content examination. Drawing on firm-level data across multiple jurisdictions, the research reveals that reductions in statutory and effective tax rates significantly enhance shareholder value by increasing free cash flow and lowering the cost of capital. Event study evidence shows that financial markets promptly incorporate tax policy changes, with abnormal returns being more pronounced among firms previously exposed to high tax burdens. However, the results also indicate heterogeneity: multinational firms benefit disproportionately from cross-border tax planning opportunities, while domestically focused or highly leveraged firms face constraints that limit value creation. The qualitative analysis of managerial disclosures supports the quantitative results, showing that tax relief often translates into short-term payouts such as share repurchases and dividends rather than long-term investment. At the same time, innovation-related tax incentives were found to moderately increase R&D expenditure, though their impact on long-term growth remains mixed. The study also highlights the emerging role of global tax coordination, particularly the OECD’s Pillar Two initiative, which is expected to diminish the effectiveness of profit shifting and reorient shareholder value toward genuine productivity and innovation. Taken together, these findings underscore that corporate tax policies not only influence immediate financial outcomes but also shape strategic corporate behavior and investor expectations, making them a pivotal determinant of shareholder value in both domestic and global contexts.