The Effect of Changes in the Percentage Depletion Allowance on Oil Firm Stock Prices

Abstract

In this paper I examine the effect of changes in tax laws on the value of firm stock prices. The behavior of oil firm stock prices in 1969 (at the time of congressional votes to reduce the percentage depletion allowance) is studied to test the hypothesis that this legislation resulted in a decline in the value of oilfirms. The empirical results show that statistically significant declines in the average value of oil firm stock prices did occur at the time of House and Senate committee votes. Cross-sectional tests show a significant correlation between the measured declines for individual firms and the expected declines predicted for those firms in the period surrounding one of the two committee votes.

Keywords

Oil companies Stock prices Depletion allowance Taxes

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