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Stock Market Reactions To India's 2016 Demonetization: Implications For Tax Evasion, Corruption, And Financial Constraints, Dhammika Dharmapala, Vikramaditya Khanna
Stock Market Reactions To India's 2016 Demonetization: Implications For Tax Evasion, Corruption, And Financial Constraints, Dhammika Dharmapala, Vikramaditya Khanna
Law & Economics Working Papers
On November 8, 2016, the Indian government made a surprise announcement that certain currency notes (representing 86% of the currency then in circulation) would no longer be legal tender (although they could be deposited in banks over a limited period). The stated reason for this sudden “demonetization” was to combat tax evasion and corruption associated with “unaccounted-for” cash. We compute abnormal returns for firms on the Indian stock market around this event, and compare patterns of abnormal returns for different subsamples of firms defined by industry, ownership structure, and other characteristics. There is little evidence that sectors thought to be …