ABSTRACT The purpose of this study is to examine the effect of a capital gains tax reduction on the stock price of firms that have not historically paid a dividend. If markets are semi-strong-form efficient, one would expect that the market price would have already adjusted prior to the day the announcement was made, assuming no new information was included in the announcement. If markets have not already incorporated the information, there would be a possibility for abnormal returns from investing in the stocks on the date of the announcement. This paper studies the returns from companies prior to, and subsequent to, the capital gains tax reduction announcement date and compares the price changes of non-dividend paying companies to those of similar firms that have historically paid dividends. The a priori expectation of the study is that the majority of a change in prices will take place prior to the announcement date as investors anticipate the likelihood of passage by the Congress and the President
