The Effect of the Relative Tax Treatment of Dividends and Capital Gains on Corporate Valuation and Behavior PDF Download
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Author: John Karl Scholz
Publisher:
ISBN:
Category :
Languages : en
Pages : 276
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Author: John Karl Scholz
Publisher:
ISBN:
Category :
Languages : en
Pages : 276
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Author: Pasi Sorjonen
Publisher:
ISBN:
Category : Capital gains
Languages : en
Pages : 102
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Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect. In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholders pay a heavier tax on dividends. We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.
Author: Roger Hall Gordon
Publisher:
ISBN:
Category : Capital gains tax
Languages : en
Pages : 0
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Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect. In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholders pay a heavier tax on dividends. We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.
Author: Trevor S. Harris
Publisher:
ISBN:
Category : Capital gains tax
Languages : en
Pages : 50
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Author: Roger H. Gordon
Publisher:
ISBN:
Category :
Languages : en
Pages : 47
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Book Description
Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect. In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholders pay a heavier tax on dividends. We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.
Author: James M. Poterba
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 44
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Author: Leonie Bell
Publisher:
ISBN:
Category : Dividends
Languages : en
Pages : 44
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Author: Kenneth James McKenzie
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 40
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Author: Eric Ohrn
Publisher:
ISBN:
Category :
Languages : en
Pages : 51
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Investor-level taxation may distort merger and acquisition decisions when capital gains are taxed at a preferable rate, relative to dividends. The intuition is that the value of a target's assets depends on whether the target is acquired. If it is acquired, then the firm's equity is taxed at the capital gains rate. If, instead, the target is not acquired, then eventually the equity will be distributed as dividends and taxed at the dividend tax rate. This tax discount means acquisitions have a tax preference, relative to dividend payments, for potential acquiring firms that pay dividends. As a result, the tax discount distorts the mergers and acquisitions of dividend-payers, leading them to do more and lower quality deals. To test for the existence and effects of this tax discount on merger and acquisition behavior, we exploit quasi-experimental variation created by the Jobs Growth and Tax Relief Reconciliation Act of 2003, which equalized dividend and capital gains rates, eliminating the tax discount. We find that acquiring firms with larger tax discounts before 2003 made higher quality acquisitions after the discount was eliminated. These results support the existence of a tax discount prior to 2003 and suggest that re-implementing the same wedge between dividend and capital gains rates would cause lower quality acquisitions that would destroy approximately $59 billion of the value of mergers and acquisitions in the United States annually.
