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The Effect of Taxes on the Relative Valuation of Dividends and Capital Gains: Evidence from Dual-Class British Investment Trusts

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  • Ang, James S
  • Blackwell, David W
  • Megginson, William L
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    Abstract

    The authors provide evidence that taxes affect equity valuation by studying British investment trusts having otherwise identical classes of cash- and stock-dividend-paying shares outstanding. The authors study 1969-82, a period in which there were two dramatic changes in tax policy. They find that stock-dividend shares, which are convertible into cash-dividend shares, sell at premiums when the tax system favors capital gains and at discounts when the tax advantage of capital gains is reduced. After the 1975 elimination of the tax advantage to stock-dividend shares, the authors observe that investors convert virtually all stock-dividend shares into cash-dividend shares. Copyright 1991 by American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 46 (1991)
    Issue (Month): 1 (March)
    Pages: 383-99

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    Handle: RePEc:bla:jfinan:v:46:y:1991:i:1:p:383-99

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    Cited by:
    1. Leonie Bell & Tim Jenkinson, 2002. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," Journal of Finance, American Finance Association, vol. 57(3), pages 1321-1346, 06.
    2. Darakhshan Younis & Attiya Yasmin Javid, 2014. "Market Imperfections and Dividend Policy Decisions of Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:99, Pakistan Institute of Development Economics.

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