Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Kenneth N. Orbach


Differences of opinion exist in the literature regarding the relationship between changes in tax policy and changes in the value of firms' capital stock. The purpose of this study was twofold. One aim was to determine whether the real estate capital markets react to public information regarding proposed or actual changes in tax law. The second and primary objective was to test the traditional economic theory that a direct relationship exists between changes in tax law and the value of the firm. Changes in cost recovery rules for real property and in corporate tax rates were the tax provisions of interest in this research project. The study was conducted using stock return data for real estate firms over the years 1981-1987. The test periods were those months when new information regarding proposed and actual tax reform provisions were publicly announced. Regular corporations, real estate investment trusts, and master limited partnerships were the organizational forms included in the sample. The firms were also classified as to their functional form, either as building and development firms, property investment firms, mortgage investment firms, or hybrid investment firms. Based on their organizational and functional forms, the firms were grouped into certain portfolios. An intervention time series model was used to determine whether the portfolios earned excess returns during the test periods. In order to examine whether the real estate markets react to the new tax law information, ordinary least squares regression techniques were employed, and two-step full transformation procedures were carried out to correct for occurrences of autoregressivity. Generalized least squares regression techniques were used for testing the economic theory regarding the relationship between tax policy and the value of the firm. The results indicate that the real estate markets do react to announcements concerning changes in tax policy. However, only minimal support was found for the economic theory of interest in this study.