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New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor

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Author Info
Leonie Bell (Economics Department, Oxford University,)
Tim Jenkinson (Saïd Business School, Oxford University and CEPR)

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Abstract

This paper examines the impact of a major change in dividend taxation introduced in the United Kingdom in July 1997. The reform was structured in such a way that the immediate impact fell almost entirely on the largest investor class in the United Kingdom, namely pension funds. We find significant changes in the valuation of dividend income after the reform, in particular for high-yielding companies. These results provide strong support for the hypothesis that taxation affects the valuation of companies, and that pension funds were the effective marginal investors for high-yielding companies. Copyright The American Finance Association 2002.

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

Volume (Year): 57 (2002)
Issue (Month): 3 (06)
Pages: 1321-1346
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Handle: RePEc:bla:jfinan:v:57:y:2002:i:3:p:1321-1346

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Donald B. Keim, . "Dividend Yields and Stock Returns: Implications of Abnormal January Returns," Rodney L. White Center for Financial Research Working Papers 14-85, Wharton School Rodney L. White Center for Financial Research.
  2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March. [Downloadable!] (restricted)
  3. John H. Boyd & Ravi Jagannathan, 1994. "Ex-dividend price behavior of common stocks," Working Papers 500, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Frank, Murray & Jagannathan, Ravi, 1998. "Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes," Journal of Financial Economics, Elsevier, vol. 47(2), pages 161-188, February. [Downloadable!] (restricted)
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  5. James M. Poterba & Lawrence H. Summers, 1985. "The Economic Effects of Dividend Taxation," NBER Working Papers 1353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February. [Downloadable!] (restricted)
  7. Michaely, Roni & Murgia, Maurizio, 1995. "The Effect of Tax Heterogeneity on Prices and Volume around the Ex-dividend Day: Evidence from the Milan Stock Exchange," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(2), pages 369-99. [Downloadable!] (restricted)
  8. Ang, James S & Blackwell, David W & Megginson, William L, 1991. " The Effect of Taxes on the Relative Valuation of Dividends and Capital Gains: Evidence from Dual-Class British Investment Trusts," Journal of Finance, American Finance Association, vol. 46(1), pages 383-99, March. [Downloadable!] (restricted)
  9. Lakonishok, Josef & Vermaelen, Theo, 1986. "Tax-induced trading around ex-dividend days," Journal of Financial Economics, Elsevier, vol. 16(3), pages 287-319, July. [Downloadable!] (restricted)
  10. Litzenberger, Robert H & Ramaswamy, Krishna, 1982. " The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?," Journal of Finance, American Finance Association, vol. 37(2), pages 429-43, May. [Downloadable!] (restricted)
  11. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December. [Downloadable!] (restricted)
  12. Miller, Merton H & Scholes, Myron S, 1982. "Dividends and Taxes: Some Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1118-41, December. [Downloadable!] (restricted)
  13. Lakonishok, Josef & Vermaelen, Theo, 1983. " Tax Reform and Ex-Dividend Day Behavior," Journal of Finance, American Finance Association, vol. 38(4), pages 1157-79, September. [Downloadable!] (restricted)
  14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  15. Keim, Donald B., 1985. "Dividend yields and stock returns: Implications of abnormal January returns," Journal of Financial Economics, Elsevier, vol. 14(3), pages 473-489, September. [Downloadable!] (restricted)
  16. Poterba, James M & Summers, Lawrence H, 1984. " New Evidence that Taxes Affect the Valuation of Dividends," Journal of Finance, American Finance Association, vol. 39(5), pages 1397-1415, December. [Downloadable!] (restricted)
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  17. Gordon, Roger H. & Bradford, David F., 1980. "Taxation and the stock market valuation of capital gains and dividends : Theory and emphirical results," Journal of Public Economics, Elsevier, vol. 14(2), pages 109-136, October. [Downloadable!] (restricted)
  18. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Renneboog, L.D.R. & Trojanowski, Grzegorz, 2005. "Control structures and payout policy," Discussion Paper 61, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Dai, Qinglei & Rydqvist, Kristian, 2007. "Investigation of the Costly-Arbitrage Model of Price Formation Around the Ex-Dividend Day," CEPR Discussion Papers 6074, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Damme, E. van & Pinkse, J., 2005. "Merger simulation analysis : an academic perspective," Discussion Paper 13, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  4. Nam, Jouahn & Wang, Jun & Zhang, Ge, 2004. "The impact of the dividend tax cut and managerial stock holdings on corporate dividend policy," Working Papers 2004-09, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  5. Damme, E. van, 2005. "Economische aspecten van deugdelijk ondernemingsbestuur," Discussion Paper 12, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  6. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2007. "Direct Evidence of Dividend Tax Clienteles," SIFR Research Report Series 51, Swedish Institute for Financial Research. [Downloadable!]
  7. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2006. "Direct Evidence of Dividend Tax Clienteles," CEPR Discussion Papers 6005, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Andrew Benito & Garry Young, . "Hard Times or Great Expectations?: Dividend omissions and dividend cuts by UK firms," Bank of England working papers 147, Bank of England. [Downloadable!]
    Other versions:
  9. Daunfeldt, Sven-Olov, 2005. "Tax-Induced Trading and the Identity of the Marginal Investor: Evidence from Sweden," HUI Working Papers 3, The Swedish Retail Institute (HUI). [Downloadable!]
    Other versions:
  10. Daunfeldt, Sven-Olov & Selander, Carina & Wikström, Magnus, 2006. "Taxation, Dividend Payments and Ex-Day Price Changes," UmeÃ¥ Economic Studies 684, Umeå University, Department of Economics. [Downloadable!]
  11. Renneboog, L.D.R. & Trojanowski, G., 2005. "Patterns in payout policy and payout channel choice of UK firms in the 1990s," Discussion Paper 02, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
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