Did ACRS Really Cause Stock Prices to Fall?, Issue 2990
This paper tests the hypothesis that the introduction of the Accelerated Cost Recovery System in 1981 caused a reduction in stock prices by reducing the value of existing capital. A second hypothesis that these depreciation changes benefited firms by increasing the return from new investment is also examined. Stock returns during the period surrounding enactment of this legislation are evaluated with data on capital stock and investment for over 800 firms. The empirical results suggest that neither hypothesis is an important determinant of cross-sectional differences in returns during this period. Differences in stock returns are in the direction predicted by the second hypothesis, but the relationship is not statistically significant. A test of the joint effects of both hypotheses operating simultaneously is supported by the data, but this relationship is also not statistically significant.
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44 industries 5/89 Stock Volatility A-K-F hypothesis accelerated depreciation ACRS REALLY CAUSE Act of l98l adjustment costs Andrew asset predicted Auerbach and Kotlikoff August l98l Bureau of Economic Business Cycle CAPM CAUSE STOCK PRICES changes in firm COMPUSTAT cost of purchasing cross-sectional differences decline in value depreciation schedules differences in stock dollar Economic Research equipment and structures estimates excess return existing assets firm predicted Fischer Black industry number investment tax credit ITCj Joint effects Jorgenson Kotlikoff l983 l0 percent l50 percent declining l98l Act l98l law l98l Tax Act marginal cost Massachusetts Avenue NBER old law original owner Paul Krugman percent declining balance present value price change resale second owner Stiglitz stock market stock returns switch to straight-line tax change tax rate TRAD and AKF types of equipment value of depreciation value of existing variable AKF variable TRAD Wijnbergen William Schwert York Stock Exchange