In Taiwan, the tax base of land value increment tax is based on the government-announced value, which is far below the actual market value and is restated only once a year. In September 1992, the cabinet of Executive Yuan, however, passed a proposal (a draft amendment to the Statute for the Equalization of Land Rights), initiated by the then-minister of Finance, to raise the tax base of the incremental value from the government-announced value to the market value. The proposal immediately became a hotly debated issue and was strongly criticized by the National Federation of Commerce. In October 1992, under great political pressure, the Executive Yuan withdrew this disputed proposal, with the then-Minister of finance stepping down. The proposed change from the government-announced value system to the market value system was predicted to have negative impacts on companies with high debt ratios and high land-to -total assets ratios. Further, the negative impacts were predicted to be reversed when the proposal was withdrawn from the Executive Yuan. This study examines the stock market reactions to this proposed change in the land value increment tax policy. The results of this study are as follows: (1) In September 1992, when the Executive Yuan passed the proposal to raise the tax base of land value increment tax, companies with high leverage experienced significant negative stock returns. Further, during this event period, investors may obtain signification positive stock returns by holding a short position selling stocks of companies with high debt ratios. (2) In October 1992, when the then-Minister of Finance stepped down, suggesting that the market value-based land tax policy could not be effected, companies with high land-to-total assets ratios experienced significant positive stock returns. Further, during this event period, investors may obtain significant positive stock returns by holding a long position buying stocks of companies with high ratios of land to total assets. The findings of this study suggest that investors may use financial statement information to devise stock trading strategies to obtain excess returns in responding to changes in the land value increment tax policy.