An analysis of the stock market reaction to the announcements of the UK Soft Drinks Industry Levy.
Economics and Human Biology 2019
Law C, Cornelsen L, Adams J, Penney T, Rutter H, White M, and Smith R
DOI : 10.1016/j.ehb.2019.100834
PubMed ID : 32081676
URL : https://linkinghub.elsevier.com/retrieve/pii/S1570677X19302096
On 16 March 2016, the government of the United Kingdom announced the Soft Drinks Industry Levy (SDIL), under which UK soft-drink manufacturers were to be taxed according to the volume of products with added sugar they produced or imported. We use 'event study' methodology to assess the likely financial effect of the SDIL on parts of the soft drinks industry, using stock returns of four UK-operating soft-drink firms listed on the London Stock Exchange. We found that three of the four firms experienced negative abnormal stock returns on the day of announcement. A cross-sectional analysis revealed that the cumulative abnormal returns of soft drink stocks were not significantly less than that of other food and drinks-related stocks beyond the day of the SDIL announcement. Our findings suggest that the SDIL announcement was initially perceived as detrimental news by the market but negative stock returns were short-lived, indicating a lack of major concerns for industry. There was limited evidence of a negative stock market reaction to the two subsequent announcements: release of draft legislation on 5 December 2016, and confirmation of the tax rates on 8 March 2017.