D3

Presentation at VHB Anniversary Conference 2022 by Xixi Zhang

16/03/2022

Consumer Reactions to Negative Tax News

The paper presented examines consumers’ perceptions of firms exposed to news on tax issues in media with negative sentiment (negative tax news) and its implications for consumption behavior. Using quarterly financial data and hand-collected negative tax news from consumer-oriented S&P 500 firms during the period 2000-2019, Xixi Zhang finds that the appearance of negative tax news reduces actual consumers’ consumption, as reflected in decreased sales growth. She further finds evidence that other news characteristics (the number and sentiment) of negative tax news affect actual consumers’ consumption behavior. In additional analyses, the results suggest that the effect of the appearance and the number of negative tax news on actual consumers lasts for two quarters, that the effect is particularly prominent in the recent period 2011-2019, and that the effect is dependent on litigation-related words in negative tax news. Overall, this paper provides empirical evidence on actual consumer reactions to negative tax news. These results should be of interest to investors and firms as they concern about consumer reactions to aggressive tax behavior.