Ahmad, Ahmad; Rumman, Ghaleb Abu; Id is, Mohammed; Allozi, Nu ah; Melhem,
Mun ase J.
A icle
Do bank s ock p ices e icien ly e lec he in o ma ion
con en in a key ax e o m e en ?
Cogen Economics & Finance
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Ahmad, Ahmad; Rumman, Ghaleb Abu; Id is, Mohammed; Allozi, Nu ah;
Melhem, Mun ase J. (2024) : Do bank s ock p ices e icien ly e lec he in o ma ion con en in a key
ax e o m e en ?, Cogen Economics & Finance, ISSN 2332-2039, Taylo & F ancis, Abingdon, Vol.
12, Iss. 1, pp. 1-17,
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Do bank s ock p ices efficien ly eflec he
in o ma ion con en in a key ax e o m e en ?
Ahmad Ahmad, Ghaleb Abu Rumman, Mohammed Id is, Nu ah Allozi &
Mun ase J. Melhem
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& Mun ase J. Melhem (2024) Do bank s ock p ices efficien ly eflec he in o ma ion
con en in a key ax e o m e en ?, Cogen Economics & Finance, 12:1, 2411559, DOI:
10.1080/23322039.2024.2411559
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FINANCIAL ECONOMICS | RESEARCH ARTICLE
Do bank s ock p ices e icien ly e lec he in o ma ion con en in a
key ax e o m e en ?
Ahmad Ahmad
a
, Ghaleb Abu Rumman
a
, Mohammed Id is
b
, Nu ah Allozi
c
and
Mun ase J. Melhem
a
a
Depa men o Accoun ing, The Uni e si y o Jo dan, Amman, Jo dan;
b
Depa men o Accoun ing, Facul y o Business,
Applied Science P i a e Uni e si y, Amman, Jo dan;
c
Depa men o Accoun ing, School o Business, The Uni e si y o
Jo dan, Amman, Jo dan
ABSTRACT
This s udy examines he beha io o bank s ock p ices in Jo dan in ela ion o a signi i-
can ax e o m e en . We analyze a sample o all banks lis ed on he Amman S ock
Exchange o s udy he ma ke esponse o he Amended Income Tax Law 2018. In he
p oposal pe iod, in es o s we e an icipa ing a manda o y ax inc ease o 5%, hough he
enac ed law di e ed om expec a ions by implemen ing only a empo a y, sligh ax
inc ease o 3%. Ou indings e eal ha he e a e highe s ock e u ns obse ed du ing
he pos -app o al pe iod o he Amended Income Tax Law 2018 compa ed o he p e-
app o al pe iod. This holds o bo h indi idual s ocks and po olios, indica ing a posi i e
ma ke esponse o he ax e o m. This pape con ibu es o he exis ing body o li e a-
u e ha examines p icing anomalies. The indings o his s udy indica e ha when a ax
bill is passed wi h a co po a e ax a e lowe han he p oposed le el, i c ea es a posi-
i e ea nings su p ise. Howe e , he ma ke displays ine iciency in p omp ly e ising i s
expec a ions, esul ing in a delay in he s ock e u n pa e n. This sugges s ha he e is
a disc epancy be ween he ma ke ’s eac ionasimpliedby hee icien ma ke hypo h-
esis and he ac ual impac o he ax e o m on bank s ock p ices.
IMPACT STATEMENT
This s udy in es iga es he impac o a signi ican ax e o m e en on he beha io o
bank s ock p ices in Jo dan. Using e en s udy me hodology, he esea ch examines
whe he he ma ke esponds a ionally o he ea nings news ela ed o he es ablish-
men o he Na ional Solida i y Accoun , comp ising 3% o banks’ axableincomeunde
he enac ed Amended Income Tax Law 2018, compa ed o a highe inc ease o 5% o
banks' axable income p oposed du ing he p e-app o al pe iod o he ax law. The
indings sugges ha ax laws in luence inancial ma ke s and a ec s ock p ices, as
s ock in es o s ex apola e hei p io nega i e expec a ions in o he u u e making i
possible o ade based on his mac oeconomic e en . In es o sen imen , limi ed a en-
ion capaci y, o e con idence, and ancho ing bias could lead in es o s o eac i a ion-
ally o ac ual s a is ics on he elease da e by aking p io o ecas s a ace alue. The
s udy has impo an implica ions o academics, p ac i ione s and policymake s.
ARTICLE HISTORY
Recei ed 13 No embe 2023
Re ised 18 Sep embe 2024
Accep ed 27 Sep embe 2024
KEYWORDS
Tax e o m; ea nings
su p ises; bank s ocks;
ma ke eac ion; ma ke
e iciency
SUBJECTS
Accoun ing; Finance;
Mac oeconomics
1. In oduc ion
Co po a e income axes a e a challenging aspec o e enue policy o go e nmen s, as axes educe he
ea nings and cash lows a ailable o common s ock holde s, inhibi he po en ial o hei in es men s,
and c ea e isks ha ad e sely a ec s s ock p ices (e.g. A dagna, 2009; A in e al., 2009; Blouin e al.,
2009; Dai e al., 2008; Gae ne e al., 2020; Golob, 1995; Lang & Shackel o d, 2000; Wang & Macy, 2022).
Chang e al. (2017) poin ou ha axes ha e signi ican economic implica ions and ha i ms can
inc ease hei di idends and s ock p ices when co po a e axes a e educed. E osa and Gonz
alez (2019)
demons a e ha axes ha m a e - ax income, educing i ms’g ow h po en ial. Indeed, he ole o
CONTACT Ahmad Ahmad [email p o ec ed] Depa men o Accoun ings, The Uni e si y o Jo dan, Amman, Jo dan
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2411559
h ps://doi.o g/10.1080/23322039.2024.2411559
ea nings in s ock p ices is e y well emphasized (e.g. Huang e al., 2015; Johnson & Zhao, 2012; Le e al.,
2019; Mille , 2005; Pa k e al., 2014).
Du ing he p e-app o al pe iod o he Amended Income Tax Law (AITL) in Jo dan da ed Sunday, 2
Decembe 2018, a new ax bill p oposed o inc ease he co po a e ax a e o banks om 35% o 40%,
which he ma ke may pe cei e as nega i e ea nings news. Howe e , he enac ed AITL 2018 did no
app o e his 5% inc ease, ins ead main aining he 35% ax a e and es ablishing he Na ional Solida i y
Accoun consis ing o 3% o banks’ axable income. The e enues o his accoun shall be alloca ed in he
gene al budge o se le he public deb . This accoun is manda o y as long as he coun y has public deb .
The s udy conduc ed by He and Li (2020) in oduces he concep o using he p io day’s a e age
ea nings su p ise as a e e ence poin o in es o s who expe ience cogni i e cons ain s when p ocess-
ing in o ma ion. This e e ence poin se es as a benchma k o hei decision-making p ocess.
On he o he hand, Ha zma k and Shue (2018) explo e he impac o e o s in in es o s’pe cep ions
a he han hei expec a ions. Thei esea ch highligh s how hese pe cep ual e o s can in luence in es -
men decisions and subsequen ly a ec ma ke ou comes. Bo h s udies shed ligh on di e en aspec s o
in es o beha io and decision-making, emphasizing he ole o cogni i e limi a ions and pe cep ual e o s in
shaping ma ke dynamics. Following hese s udies, we es whe he in es o s use p io ax news based on
he highe ax a e p oposal, as a ele an ea nings e e ence poin and classi y he AITL 2018 announcemen
da e as con aining posi i e ea nings news. Second, because ea nings news has in o ma ion con en ela ed
o s ock p ices (e.g. Bou eska & Regaieg, 2017;Choy&Zhang,2021;Ozo&A un,2019;Sponhol z,2008;
Syed & Bajwa, 2018), we explo e whe he he less-expe ienced indi idual in es o s in he Amman S ock
Exchange (ASE), who cons i u e a ela i ely high p opo ion, ex apola e hei pessimism in o u u e, pushing
p ices below hei undamen al alues. Pu di e en ly, we aim o de e mine he ou come i s ock in es o s
could adjus hei expec a ions abou he ea nings su p ise a he ime he ax bill was signed in o law, bu
ailed o e icien ly e lec his upda ed in o ma ion quickly, making i possible o ade on ha basis.
We con ibu e o he exis ing li e a u e by u ilizing da a on banks, which cons i u e he dominan
economic sec o in Jo dan, o examine he ma ke eac ions o a key ax e o m e en .
1
This s udy di e s
om p io wo k in se e al ways. Fi s , we compa e he buy-and-hold e u ns (BHRs) o he sample banks
in he p e- and pos -AITL 2018 app o al pe iods based on indi idual s ocks and po olios.
2
The po olio
app oach has he ad an age o di e si ying away he mos unsys ema ic isks. Second, when using he
po olio app oach on a alue-weigh ed basis, we ecalcula e a bank’s ma ke capi aliza ion o he p e-
and pos -app o al pe iods. Thi d, we employ panel eg ession me hods o es o he e ec o he ax
e o m on he s ocks’cumula i e abno mal e u ns (CARs). We check he obus ness o he esul s by
compa ing he esul s o he BHRs and CARs. Fou h, we ely hea ily on he e icien ma ke hypo hesis
(EMH) o conside how he ma ke in eg a es publicly a ailable in o ma ion in o s ock p ices using ou
es windows om he e en da e. Acco ding o Lagoa de-Sego and Lucey (2009), he ASE is he mos
e icien ma ke in he Middle Eas e n egion. Finally, o he bes o ou knowledge, his is he i s s udy
o explo e s ock p ice beha io in he banking sec o a ound a key ax e o m e en in he egion.
The emaining sec ions o he a icle a e s uc u ed as ollows: Sec ion 2 p o ides a concise e iew o he
pe inen li e a u e and es ablishes he esea ch hypo heses based on he exis ing knowledge in he ield.
Sec ion 3 ou lines he da a u ilized in he s udy and explains he empi ical me hodology employed o ana-
lyze he da a. Sec ion 4 p esen s he p ima y indings o he s udy. Finally, sec ion 5 concludes he a icle,
summa izing he main indings, discussing hei implica ions, and sugges ing a enues o u he esea ch.
2. Theo e ical amewo k and hypo hesis de elopmen
Ou analysis is g ounded in he E icien Ma ke Hypo hesis (EMH), which sugges s ha s ock p ices ully
e lec all a ailable in o ma ion (Fama, 1970). EMH s a es ha any new in o ma ion, including ax law
changes, should be quickly in eg a ed in o s ock p ices, lea ing no oom o abno mal e u ns based on
publicly a ailable da a. Howe e , empi ical e idence sugges s ha ax laws do in luence inancial ma -
ke s and hus a ec s ock p ices, albei in ways ha may some imes seem a odds wi h he p edic ions
o EMH (Chudek e al., 2011; Eich elde & Lau, 2014; Wagne e al., 2018a,2018b; Wang & Macy, 2021).
Tasnia e al. (2021) posi ha in es o s a e ax-a e se, inding a posi i e associa ion be ween axes
and he ola ili y o bank e u ns. S ock p ice eac ions o ax changes la gely depend on he
2 A. AHMAD ET AL.
unan icipa ed componen o a ax announcemen , as documen ed by P
as o and Ve onesi (2012). Wang
and Macy (2021) examine how ma ke s in di e en coun ies eac o co po a e ax cu s using a global
da ase co e ing 16 yea s s a ing om 2002. Thei indings indica e ha he g ea e he ax dec ease,
he highe he abno mal e u ns ea ned by in es o s. Mo eo e , hey obse e ha sample ma ke s
eac ed o expec ed ax changes well be o e and con inued a e he ax change, challenging he
assump ion ha ma ke s ully and immedia ely in eg a e economic e ec s as he EMH would imply.
Wagne e al. (2018a) explo e he ma ke eac ion o he elec ion o Donald J. T ump as U.S. p esiden
in 2016 by eg essing abno mal s ock e u ns on cash e ec i e ax a es (ETR), wi h abno mal e u ns
es ima ed using bo h he capi al asse p icing model and he Fama-F ench h ee- ac o model.
An icipa ing la ge ax cu s, hey ound excess e u ns posi i ely (nega i ely) associa ed wi h high (low)
ax-paying co po a ions. Mo eo e , i ms wi h subs an ial de e ed ax liabili ies ou pe o med hose wi h
de e ed ax asse s. Wagne e al. (2018b) ex end his wo k by in es iga ing s ock ma ke eac ions o
he Tax Cu s and Jobs Ac o 2017 du ing i s legisla i e pe iod. They ound a signi ican posi i e coe i-
cien on he ETR explana o y a iable o he ull legisla i e pe iod, sugges ing ha highly axed co po a-
ions bene i ed mo e om he new ax law and hus ou pe o med i ms wi h low axes.
Howe e , he e idence on he ela ionship be ween co po a e axes and s ock e u ns is mixed.
Gae ne e al. (2020) obse ed he e ogeneous s ock p ice eac ions a ound he U.S. Tax Cu s and Jobs
Ac o 2017 ac oss di e en o eign exchanges. Chinese i ms su e ed signi ican nega i e e u ns, while
i ms in o he sample coun ies expe ienced posi i e e u ns. Wang and Macy (2022) s udied ma ke
esponses o la ge co po a e ax cu s in Eu opean coun ies, inding posi i e cumula i e abno mal
e u ns (CARs) o Slo akia and Ge many, bu nega i e e u ns o Poland and Aus ia. The esea che s
a ibu ed he unexpec ed nega i e e u ns in Poland and Aus ia o noise o simul aneous e en s o se -
ing he expec ed bene i s om he ax cu s.
Fu he inconclusi e e idence exis s. Mu hi acha oen (2021) ound an ad e se ela ionship be ween
co po a e axes and in es men s in less de eloped coun ies. Sanka ganesh and Shanmugam (2021)
documen ed a simila ad e se ela ionship be ween e ec i e axes and co po a e in es men s. Dobbins
and Jacob (2016) epo an in e se ela ionship be ween ma ginal co po a e axes and in es men s by
local i ms. Con e sely, Ga y e al. (2016) obse ed signi ican g ow h in in e co po a e in es men ol-
lowing inc eases in co po a e ma ginal ax a es, which hey a ibu ed o i ms edi ec ing excess
esou ces om less a ac i e in e nal expansion o mo e a ac i e equi y in es men s.
Finally, co po a e income axes and he po en ial o u u e payou s a e key de e minan s o i ms’
esou ce alloca ion. Venezian (2007) emphasized ha , in addi ion o ax changes, s ock p ices also
depend on i ms’ u u e payou s. Wong e al. (2017) showed ha news o di idend ax educ ions led o
signi ican excess e u ns. Simila ly, Becke e al. (2013) demons a ed ha ele a ed di idend axes
encou age p o i able i ms o inance hei in es men s in e nally. Campbell e al. (2013) ound ha
lowe axes on i ms’payou s imp o e co po a e in es men .
Ma ke e iciency equi es s ock p ices o e lec publicly a ailable e en s as enough ha any
obse ed abno mal e u ns a e a me e luck. In a ax con ex , Eich elde and Lau (2014) ind a delayed
ma ke esponse o ax announcemen s, caused mainly by in es o s who a e no ully ax-awa e, making
ading on ha basis a plausible in es ing s a egy. Adam e al. (2015) demons a e ha in esponse o
a ax change, less sophis ica ed in es o s emphasize pas pe o mance ela i e o mo e sophis ica ed
in es o s, which d i es asse s p ices away om undamen als, c ea ing he oppo uni y o weal h eallo-
ca ion. Addi ionally, Wagne e al. (2018a,2018b) obse e s ock p ice anomalies in esponse o ax
changes. Speci ically, in es o s equi e a long ime o ully in eg a e he in o ma ion abou he ax
change, and hey ind ha abno mal e u ns exhibi a non-mono onic pa e n.
The ea nings- ela ed li e a u e adds o he deba e on why s ock p ices may de ia e om he EMH.
(e.g. Bi z, 2017; Chudek e al., 2011; Ekholm, 2006; Ge ais & Odean, 2001; Gilbe e al., 2012; Jacobs &
Webe , 2012). Acco ding o Bi z e al. (2021), ancho ing bias makes in es o s unable o co ec ly ecog-
nize he su p ise componen o mac oeconomic announcemen s, and hey he e o e eac i a ionally o
ac ual s a is ics upon hei elease, aking p io o ecas s a ace alue. Using Chinese da a o es he
ma ke eac ion o eleases o ea nings news, Feng and Hu (2014) epo ha beha io al bias can explain
in es o s’ini ial unde eac ion a he ea nings announcemen da e. The au ho s also documen ha he
mo e ea nings announcemen s occu ing on he same day, he weake he immedia e ma ke esponse
COGENT ECONOMICS & FINANCE 3
and he s onge he pos -announcemen d i . Simila ly, Hi shlei e e al. (2009) obse e ha in es o s
become con used i hey pe o m mul iple analyses simul aneously, a ibu ing his i a ional beha io o
in es o s’limi ed a en ion. A mo e ecen s udy by Dong e al. (2022) emphasizes ha in es o a en-
ion dis o s s ock p ices. Wagne e al. (2018b) make simila a gumen s in he axa ion con ex .
Fu he e idence ha he ma ke canno p ope ly p ice capi al asse s is based on in es o sen imen ,
whe e in es o emo ions i a ionally d i e s ock p ices (e.g. Abdelhedi-Zouch & Gho bel, 2016; Ka a ias
e al., 2021; Ke & Sie acki, 2019). In es o sen imen plays an impo an ole in in es o und selec ion
decisions (e.g. Jiang & Y€
uksel, 2019).
Using da a om Finnish companies, Ekholm (2006) inds sys ema ic di e ences be ween la ge in es -
o s ep esen ing he mino i y and smalle in es o s ep esen ing he majo i y. While la ge in es o s a e
less willing o sell a e good ea nings news, small in es o s a e mo e likely o sell. Ekholm (2006) a ib-
u es he i a ional beha io o smalle in es o s educing hei holdings ollowing good public news o
o e con idence. Ra ional la ge (i a ional small) in es o s exhibi less o e con idence (mo e o e con i-
dence) when pe cei ing good public news as co ec (less co ec ). Ekholm (2006) d aws on Ge ais and
Odean (2001), who ind ha inexpe ienced new ade s who a e success ul can become o e con iden ,
highly c edi ing hei skills. O e ime, inexpe ienced ade s will lea n, become mo e sophis ica ed, and
hus become less o e con iden . The esea che s conclude ha he ma ke will always ha e new,
i a ional, o e con iden ade s.
Thus, he a ionali y wi h which he Jo danian ma ke eac s o ax- ela ed mac oeconomic announce-
men s is unclea . Unsophis ica ed indi idual in es o s, who end o be i a ional and d i en by a en ion
and emo ions, ep esen 35% o all in es o s in he ASE.
3
The e o e, we p opose ha in es o s in
Jo dan’s banking sec o mis akenly exhibi con as ing e ec s when hey look a he cu en ea nings
su ounding he AITL 2018 e en da e by eac ing o he ex a and empo a y (based on he exis ence
o public deb ) ax o 3% in e ms o he ea nings news in he p e-app o al pe iod when he p oposed
ax bill sugges ed a highe , pe manen ax a e o 5%, and classi y he new ax law as con aining posi-
i e ea nings news. Hence, we would ind a posi i e ma ke eac ion (see: Ha zma k & Shue, 2018).
Again, in ligh o he heo e ical a ionale o he e icien ma ke hypo hesis (EMH), s ock p ices comp e-
hensi ely encompassing exis ing in o ma ion, and addi ional in o ma ion is p omp ly and p ecisely assimi-
la ed in o s ock p ices (Beechey e al., 2000). In ela ion o ax e o m e en (AITL 2018), he announcemen
and ollowing app o al o he ax e o m ac can be conside ed subs an ial in o ma ion ha has he po en-
ial o impac he inancial pe o mance o banks (Hellwig, 2009;Huange al.,2019). Hence, du ing he p e-
app o al pe iod, ma ke pa icipan s may ha e ha bo ed unce ain ies ega ding he ou come and po en ial
consequences o he ax e o m. Acco dingly, he p ices o bank s ocks migh no ha e ully e lec ed he
an icipa ed e ec s o he e o m. Ne e heless, subsequen o he app o al o he ax e o m ac , he ma ke
gains cla i y conce ning he speci ic p o isions and hei impac on he inancials o banks.
Looking mo e closely a he case o Jo dan, he banking sec o no ably plays a c ucial ole in he
de elopmen o i s economy (Mohammad & Da wish, 2022), and any signi ican egula o y o policy
changes can ha e a signi ican impac on he inancial pe o mance and in es o sen imen owa ds
banks. In he con ex o eme ging ma ke s like Jo dan, he ma ke dynamics can be in luenced by a i-
ous ac o s, including in o ma ion asymme y, in es o sen imen (Healy & Palepu, 2001) and in o mal
ins i u ions (Melhem & Da wish, 2023). The la e adds a signi ican laye o in o mali y o he low o
ma ke and egula o y news ha could be accessed by in o mal ne wo ks’ac o s.
Du ing he p e-app o al pe iod o AITL 2018, in es o s in Jo dan’s banking sec o migh ha e aced
unce ain y ega ding he speci ic p o isions and implica ions o he p oposed ax e o m. The eme ging
ma ke con ex , combined wi h po en ial in o ma ion asymme y and limi ed inancial in o ma ion, may
ha e caused ma ke pa icipan s o exhibi cau ion and delay hei eac ions o he expec ed impac o
he ax e o m. Howe e , a e he ax e o m ac is app o ed, he ma ke ecei es cla i y on he ax p o-
isions and hei implica ions o banks ope a ing in Jo dan. This inc eased anspa ency and unde -
s anding among ma ke pa icipan s can lead o a eassessmen o he in o ma ion and a mo e in o med
alua ion o bank s ocks. Hence, in he con ex o Jo dan, he ma ke ’s esponse o he ax e o m e en
is likely o be mo e p onounced. The posi i e news o a lowe - han-expec ed ax inc ease can gene a e
op imism and enhance in es o con idence in he banking sec o . Al e na i ely, his could be accessed
by in o mal ne wo k ac o s p io o he news elease conside ing he salience o in o mal ne wo king
4 A. AHMAD ET AL.
modes in Jo dan. Consequen ly, his posi i e sen imen can d i e highe demand o bank s ocks, esul -
ing in inc eased BHRs du ing he pos -app o al pe iod compa ed o he p e-app o al pe iod in Jo dan.
Hence, we p opose he ollowing hypo hesis:
H1: Fo banks lis ed on he ASE, he BHRs on indi idual s ocks a e highe o he AITL 2018 pos -app o al
pe iod han in he p e-app o al pe iod.
No ably, he impac o a ax e o m e en on bank s ock p ices can ex end beyond indi idual s ocks
o in luence he o e all pe o mance o he sec o . Acco ding o po olio heo y, in es o s o en adop
di e si ica ion s a egies o manage isk and enhance e u ns (Schol ens, 2009). Gi en he economic sig-
ni icance o he banking sec o , i ep esen s a c ucial componen o in es men po olios. Tax e o m
e en s, such as he AITL 2018, can signi ican ly a ec he inancial p ospec s and pe o mance o mul-
iple banks wi hin a po olio simul aneously (Hemmelga n & Teichmann, 2014).
Fu he mo e, ax e o ms in oduce sys emic isk o he banking sec o , as changes in ax policies can
impac he p o i abili y and inancial heal h o banks, leading o a collec i e esponse in he ma ke
(Hellwig, 2009; Huang e al., 2019). In an eme ging ma ke like Jo dan, whe e ma ke pa icipan s may
exhibi highe sensi i i y o sys emic isk ac o s, he pos -app o al pe iod o a ax e o m e en can ig-
ge a mo e p onounced eac ion, in luencing he pe o mance o he en i e banking sec o po olio.
In es o sen imen and ma ke e iciency also play signi ican oles in po olio pe o mance. As sug-
ges ed by he EMH, ma ke s should quickly and accu a ely inco po a e new in o ma ion, including ax
e o ms. Howe e , de ia ions om his ideal, such as delayed eac ions o in es o sen imen -d i en
beha io , can esul in signi ican shi s in po olio pe o mance (Gao e al., 2021). Posi i e news, such
as a lowe - han-expec ed ax inc ease, can boos in es o con idence, leading o inc eased buying in e -
es in bank s ocks and d i ing up he p ices o indi idual s ocks wi hin he po olio. This posi i e ma ke
sen imen could con ibu e o highe BHRs o he po olio du ing he pos -app o al pe iod compa ed
o he p e-app o al pe iod. Taking hese ac o s in o accoun , we p opose he ollowing hypo hesis:
H2: Fo banks lis ed on he ASE, he BHRs on a po olio consis ing o all s ocks is highe o he AITL 2018
pos -app o al pe iod han in he p e-app o al pe iod.
Wang and Macy (2022) emphasize he ma ke ’s o wa d looking. Consequen ly, by he ime a ax bill
becomes law as on he e en da e, eg essing he abno mal s ock e u ns on he AITL 2018 di e en ial
ax e ec should yield a posi i e coe icien . I can also be a gued ha changes in ax policies can di -
ec ly impac ea nings o i ms (see, o example, Guen he , 1994). In he case o he AITL enac men ,
banks in Jo dan may expe ience a ia ions in hei ax liabili ies and po en ial adjus men s in hei inan-
cial s a emen s. Ma ke pa icipan s, including in es o s and analys s, a e likely o inco po a e hese ea n-
ings implica ions in o hei expec a ions and alua ion models. Also, as he e icien ma ke hypo hesis
sugges s, s ock p ices e lec all a ailable in o ma ion, including ea nings su p ises; posi i e ea nings su -
p ises, which occu when ac ual ea nings exceed ma ke expec a ions, o en lead o upwa d s ock p ice
adjus men s (see Beechey e al., 2000). In he con ex o he AITL enac men , i he ea nings implica ions
a e pe cei ed as posi i e by he ma ke , banks’cumula i e abno mal s ock e u ns a e expec ed o be
posi i ely a ec ed. Ou hi d hypo hesis is he e o e:
H3: Fo banks lis ed on he ASE, cumula i e abno mal s ock e u ns a e posi i ely a ec ed by he ea nings
implica ions o he AITL enac men on 2 Decembe 2018.
3. Da a and me hodology
3.1 Da a
The main da a consis o he daily e u ns o all 15 banks lis ed on he ASE om Sunday, 11 No embe
2018 o Thu sday, 20 Decembe 2018. Thus, we conside bank e u ns o 30-wo king days consis ing o
wo equal pe iods: 15 days be o e and 15 days a e he AITL 2018 announcemen da e when i was
enac ed in o law ( e e ed o as he e en da e). We collec ed s ock p ices di ec ly om he ASE’s o icial
websi e (h ps://www.ase.com.jo). No s ock p ice es a emen s o cash di idend adjus men s we e
needed as no capi al changes such as s ock spli s, sc ip issues, o decla a ions o cash di idends
COGENT ECONOMICS & FINANCE 5
occu ed du ing his sample pe iod. Finally, we calcula ed he s udy a iables using banks’da a o he
hi d and ou h qua e s o 2014-2018 om h ps://www.ase.com.jo/en/disclosu es.
3.2 Me hodology
We employ an e en s udy me hodology o in es iga e he consequences o he AITL 2018 on banks’
s ock p ices in Jo dan. Mo e speci ically, we use da a on all 15 banks lis ed on he ASE o examine
whe he in es o s in he banking sec o e icien ly pe cei ed he ea nings- ela ed e ec s o he ax law
enac ed on 2 Decembe 2018.
As he ASE does no main ain a s ock e u n ile, s a ing om 11 No embe 2018 o 20 Decembe
2018, we es ima e indi idual s ock e u ns as he di e ence be ween he s ock p ice on day and he
p ice on day -1, di ided by he p ice on day -1. Fo a day wi h no ading, and he e o e no p ice
eco d, we use he alue o -1, ollowing a simila app oach as Wagne e al. (2018b).
Then, we explo e he AITL 2018 pos -app o al es ima ed di e en ial ax e ec on banks’s ock p ices
using h ee main app oaches. Fi s , we compa e he 15 s ock e u n obse a ions be o e and a e he
e en da e using 15 coun e pa - es pe iods s a ing om one day, and accumula ed daily un il he lon-
ges o 15 wo king days. Fo his pu pose, we analyze he BHRs, which is a common me ic in
esea ch (e.g. Do ey e al., 2017; Jegadeesh & Ti man, 1993; Vo & T uong, 2018;Gange al.,2019;
Boussaidi & D idi, 2020; Ba bopoulos e al., 2020;Ahmade al.,2021; Ahmad & Abu-Ghunmi 2021). Fo
s ock i, heBHRs
i
accumula ed o e pe iod a e:
BHRi ¼Y
¼0
½1þRi −1, (1)
whe e R
i
is he simple daily e u n on s ock idu ing pe iod .
Ex ending he e en windows on a daily basis allows us o obse e i he ma ke needs ime be o e i
ully abso bs any ax- ela ed e ec . We applied he Mann Whi ney U es o check he equali y be ween
he pai ed BHRs. A e applying he i s app oach, i a s ock’s BHRs du ing he AITL 2018 p e- and pos -
app o al pe iods a e s a is ically di e en , hen a po olio analysis may suppo such a inding. Thus, we
conduc a po olio analysis o es i he BHRs on an in es men consis ing o holding all s ocks om
he banking sec o o pe iods o 2, 5, 10, and 15 wo king days be o e 2 Decembe 2018 a e s a is ically
di e en om he subsequen coun e pa BHRs.
We employ equally- and alue-weigh ed me hods o es ima e he po olio e u ns. In he o me , he po -
olio’s aw daily e u ns a e equal o he a i hme ic mean e u n o all he s ocks in he po olio; in he la e ,
he ma ke capi aliza ions acco ding o he ASE a e p opo iona e o he po olio e u ns only o he in es -
men on he i s day o each es pe iod (2, 5, 10, and 15 wo king days). The ma ke capi aliza ions o each
s ock a e hen calcula ed based on he s ock’s co esponding daily e u ns he ea e . Thus, we a oid he e ec
o ansac ions such as equi y issues, me ge s, acquisi ions, and so on, on a i m’s capi aliza ion.
Thi d, we assess i he in oduc ion o he AITL 2018 can explain he s ock e u ns om 2 Decembe
2018 o he end o he sample pe iod using a panel eg ession o conside he c oss-sec ional and ime-
a ying e ec s. Speci ically, we eg ess banks’CARs on he AITL 2018 es ima ed di e en ial ax e ec
(EDTE), an income ax expense componen ep esen ing he independen a iable, and con ol a iables
ha include ea nings pe sha e (EPS), he na u al log o o al asse s (Ln.TA), he deb a io calcula ed as
o al liabili ies di ided by o al asse s (D.Ra io), and he quick a io (Q.Ra io) de ined as ‘cash and balan-
ces a cen al banks plus balances and deposi s a banks and inancial ins i u ions plus inancial asse s a
ai alue h ough p o i ’all di ided by o al deposi s (cus ome s deposi s plus banks and inancial ins i-
u ions deposi s). Sha i e al. (2023) es how i m-speci ic aspec s can play a ole in he g een ax incen-
i e scheme in oduced in Sweden. As in B own and Wa ne (1985) and o he s (Bou eska & Regaieg,
2019; Chang e al., 2017; Ozo & A un, 2019; Wang & Macy, 2022), we es ima e bank i’s abno mal e u ns
(ARi) o day using he ollowing model:
4
ARi ¼Ri −
^
aiþ
^
BiRm
, (2)
whe e R
i
and R
m
a e he e u ns o bank iand he ma ke on day , and ^
ai,and
^
Bi
a e he ma ke
model es ima ed in e cep and slope ob ained using a 250-day es ima ion pe iod ha ends 15 days
6 A. AHMAD ET AL.
be o e he e en da e o p e en he e ec s o o he e en s om in luencing he es ima ed pa ame e s
(see Ellis & Keys, 2014). Some o he esea che s use e en s udy me hodology and skip jus 10 days
be o e he e en da e o s a he es ima ion pe iod (e.g. Singh & Padmakuma i, 2020).
We hen es ima e he CARs o each s ock. Fo consis ency wi h he p io es s, CARip ep esen s he
es ima ed daily accumula ed abno mal e u ns o bank i o a pe iod o days, p, whe e p can equal 2
wo king days (D0-D1), 5 wo king days (D0-D4), 10 wo king days (D0-D9), and 15 wo king days (D0-D14),
all as om he e en day (D0), as ollows:
CARip ¼X
D1,D4,D9,D14
p¼D0
ARip, (3)
Hence, we es ablish ou main eg ession model:
CARip ¼a1þa2EDTEip þa3EPSip þa4Ln:TAip þa5D:Ra ioip þa6Q:Ra ioip þei, , (4)
whe e EDTEip is he AITL 2018 pos -app o al es ima ed di e en ial ax e ec o bank i, accumula ed on
a daily basis conside ing he ou es windows (p ¼2, 5, 10, and 15) and scaled by he o al asse s o
each pe iod o (p). EPSip,Ln:TAip,D:Ra ioip,and Q:Ra ioip ep esen he con ol a iables o bank i, all
accumula ed on a daily basis o each e en window pe iod (p). The e o e, we use his eg ession o
obse e delays in in es o s’ eac ions o he public in o ma ion eleased a he AITL 2018
announcemen .
5
Howe e , since he ax e o m law was signed 63 days in o Q4 2018, o es o any ela ed e ec s on
banks’daily e u ns o pe iods o 2, 5, 10, and 15 wo king days using equa ion (4), in es o s will need
i s o es ima e he banks’ a iables as o he e en da e; ha is, 2 Decembe 2018. We he e o e
employ a wo-s ep p ocedu e. Fi s , we es ima e he eg ession a iables’g ow h a es in Q4 o he i e
mos ecen yea s, including 2018. We use he ASE o icial si e o ob ain he banks’ inancial epo s o
Q3 (da ed 30 Sep embe ) and Q4 (da ed 31 Decembe ) o 2014 h ough 2018. We include he da a o
2018 because in es o s a e likely o sea ch o leaked in o ma ion o he cu en yea p io o he yea
end. We hen calcula e he Q4’s 2018 a i hme ic g ow h a e mean o each eg ession a iable based
on he i e sample yea s. In he second s ep, we apply he es ima ed a iables’a i hme ic g ow h a e
means, ob ained om he i s s ep, o adjus he a iables’co esponding ac ual amoun s o Q3 2018,
making hem daily es ima es as o 2 Decembe 2018 h ough 20 Decembe 2018.
6
Finally, o es ima e a s ock’s EDTE, we apply he AITL 2018 addi ional ax a e o 3% o he s ock’s
es ima ed income be o e ax, all scaled by co esponding es ima ed o al asse s depending on he
leng h o he es window (p).
4. Resul s and discussion
We would i s expec o obse e highe s ock e u ns o he pos -AITL 2018 app o al pe iod ela i e o
he p e-app o al pe iod, as enac ing a lowe - han-expec ed co po a e ax a e should ep esen a posi-
i e ea nings su p ise. Second, in a mo e e icien ma ke , in es o s e lec hei pe cep ions o he ea n-
ings su p ise in s ock p ices mo e quickly, making i unp o i able o ade based on such in o ma ion.
4.1 Compa ing he p e- and pos -app o al pe iod s ock e u ns
The esul s in Table 1 e alua e a s ock’s mean BHRs o he AITL 2018 p e- and pos -app o al pe iods.
The indi idual BHRs o each s ock a e highe o he AITL 2018 pos -app o al pe iod ela i e o he
p e-app o al pe iod, ega dless o he pe iod leng h. Howe e , he di e ence is s a is ically signi ican on
12 ou o 15 days, wi h P alues equal o o lowe han 1%. This could be because o he ela i ely small
sample size. We hen epea his es on a po olio basis o elimina e he possibili y ha he indi idual
s ock e u ns can be explained by a di e si iable isk. In Table 2, we summa ize he po olio BHRs using
he equally and alue-weigh ed app oaches.
We ind ha he es ima ed BHRs a e highe du ing he AITL 2018 pos -app o al pe iods han in he
co esponding p e-app o al pe iods, ega dless o he leng h o he es window (p¼2, 5, 10, and 15).
COGENT ECONOMICS & FINANCE 7
he Uni e si y o Jo dan, and a PhD deg ee in accoun ing om The Wo ld Islamic Science & Educa ion Uni e si y.
He main a eas o esea ch in e es a e FinTech in accoun ing, AIS, and manage ial accoun ing.
Mun ase J Melhem holds a PhD deg ee in Managemen Accoun ing om he Uni e si y o Ken . Cu en ly, an
assis an p o esso in Accoun ing a he Uni e si y o Jo dan, he b ings ex ensi e eaching expe ience in di e se
accoun ing subjec s. D i en by a passion o esea ch, his in e es s span managemen accoun ing, HRM, and o gani-
za ions, wi h a pa icula ocus on in o mal ins i u ions in eme ging ma ke s. He has published in hese a eas in
leading HR and Indus ial Rela ions jou nals including Human Resou ce Managemen and Employee Rela ions.
ORCID
Ahmad Ahmad h p://o cid.o g/0000-0001-8452-8184
Da a a ailabili y s a emen
The da a ha suppo he indings o his s udy a e a ailable om he co esponding au ho upon easonable
eques .
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