New Evidence that Taxes Affect the Valuation of Dividends PDF Download
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Author: James M. Poterba
Publisher:
ISBN:
Category : Dividends
Languages : en
Pages : 37
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Book Description
This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last twenty-five years. Studying the relationship between dividends and stockprice movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends. Using daily data on a small sample of firms, and monthly data on a much broader sample, we find clear evidence that taxes change equilibrium relationships between dividend yields and market returns. These findings suggest that taxes are important determinants of security market equilibrium, and deepen the puzzle of why firms pay dividends
Author: James M. Poterba
Publisher:
ISBN:
Category : Dividends
Languages : en
Pages : 37
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Book Description
This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last twenty-five years. Studying the relationship between dividends and stockprice movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends. Using daily data on a small sample of firms, and monthly data on a much broader sample, we find clear evidence that taxes change equilibrium relationships between dividend yields and market returns. These findings suggest that taxes are important determinants of security market equilibrium, and deepen the puzzle of why firms pay dividends
Author: Leonie Bell
Publisher:
ISBN:
Category : Dividends
Languages : en
Pages : 44
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Book Description
Author: Oliver Zhen Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 55
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Book Description
I test whether and how shareholder income taxes affect the market response to dividend surprises. Under the US tax system, dividends are historically taxed at a higher rate than capital gains and thus receive a tax-related penalty. I provide evidence that the dividend tax penalty partially offsets the positive signaling and agency cost effects of dividends, and that the presence of tax advantaged institutional investors, proxied for by institutional ownership and the frequency of institutional trading, mitigates the negative dividend tax effect. My results support the notion that taxes impact valuation. I contribute to the literature by separating dividends' negative tax effect from their positive signaling and agency cost effects. My analysis also suggests that in event study settings, the frequency of institutional trading may be a more reliable proxy for investor tax attributes than institutional ownership.
Author: Trevor S. Harris
Publisher:
ISBN:
Category : Capital gains tax
Languages : en
Pages : 50
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Book Description
Author: Alan J. Auerbach
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 10
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Book Description
This paper extends our previous analysis (Auerbach and Hassett 2005) of the effects of the "Jobs and Growth Tax Relief Act of 2003" on firm valuation. That paper found that firms with higher dividend yields benefited more than other dividend paying firms, a result that, in itself, is consistent with both new and traditional views of dividend taxation. But further evidence favored the new view. We also found that non-dividend-paying "immature" firms experienced larger abnormal returns than other firms and that a similar bonus accrued to firms likely to issue new shares, two results that are consistent with an anticipated transition to higher dividend payments. Here, we extend our earlier analysis in two ways. First, we consider the impact of the 2004 Presidential election on option prices, to gain further insight into and confirmation of the mechanism through which the 2003 legislation affected firm values. Second, we explore in more detail the determinants of the "immaturity premium" noted above. In contrast to claims in a recent paper by Amromin et al. (2005), we find that the premium is associated with the likelihood of new share issuance, as inferred but not demonstrated in our original analysis.
Author: James M. Poterba
Publisher:
ISBN:
Category : Dividends
Languages : en
Pages : 102
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Book Description
This paper tests several competing hypotheses about the economic effects of dividend taxation. It employs British data on security returns, dividend payout rates, and corporate investment, because unlike the United States, Britain has experienced several major dividend tax reforms in the last three decades. These tax changes provide an ideal natural experiment for analyzing the effects of dividend taxes. We compare three different views of how dividend taxes affect decisions by firms and their shareholders. We reject the"tax capitalization" view that dividend taxes are non-distortionary lump sum taxes on the owners of corporate capital. We also reject the hypothes is that firms pay dividends because marginal investors are effectively untaxed. We find that the traditional view that dividend taxes constitute a "double-tax" on corporate capital income is most consistent with our empirical evidence. Our results suggest that dividend taxes reduce corporate investment and exacerbate distortions in the intersectoral and intertemporal allocation of capital
Author: John Karl Scholz
Publisher:
ISBN:
Category :
Languages : en
Pages : 276
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Book Description
Author: James M. Poterba
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
Author: Stephen Bond
Publisher: International Monetary Fund
ISBN: 1451867689
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
We re-examine the extent to which personal taxes on dividends are capitalized into the equity prices of domestic firms, using data from around the time of the 1997 U.K. dividend tax reform, which removed a significant tax credit for an important group of investors: U.K. pension funds. The tax-adjusted CAPM suggests that the impact should depend on an average of dividend tax rates across all investors, and that U.K. pension funds should reduce their holdings of the previously tax-favored asset: U.K. equities. Given that U.K. pension funds are small relative to the total size of the world capital market, a small open economy-type argument implies that the main effect of the reform would be to reduce U.K. pension funds' ownership of U.K. equities, with little impact on their price. We present evidence which is consistent with these hypotheses. We discuss why previous research (Bell and Jenkinson, 2002) reached a different conclusion.
Author: Ms.Li Liu
Publisher: International Monetary Fund
ISBN: 1484337700
Category : Business & Economics
Languages : en
Pages : 49
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Book Description
In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-difference approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 15.7 percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals.
