Do Bank Stockholders Share the Burden of Required Reserve Tax? Evidence from Turkey

Abstract

This study examines whether bank shareholders bear the burden of required reserves tax by analyzing the reaction of banks' stock returns to the changes in the required reserve ratio. Results show that increases in reserve requirements significantly lower bank returns, implying that shareholders share a portion of the required reserve tax. Required reserves changes are partially predicted by investors, and increases and decreases in required reserve rates have an asymmetric effect on stock returns. In addition, the remuneration of reserves has important implications for the tax burden. Finally, some heterogeneity across banks exists as reflected by differences in signs and magnitudes of the estimated coefficients.

Keywords:

• Istanbul Stock Exchange
• monetary policy
• required reserves tax
• stock returns
• tax incidence
• Turkey