Markus Brendel, Bernhard Schwetzler, Christian Strenger

• Under the German Tax Reduction Act of 2000, capital gains taxation was completely repealed in order to encourage corporate iestors to sell their unproductive equity stakes and to create a more dispersed ownership structure in Germany. Contrary to the key intentions of the policy makers, we find evidence for a positive ownership concentration effect of the tax reform. Exploiting the exogenous variation in ownership concentration generated by the tax reform, we also find that the unintended development in equity ownership concentration exerted a positive impact on firm value. According to our theoretical model, we attribute this value creating effect to a favorable reshuffling of agency costs.