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Ownership structure and tax-friendly dividends

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  • Henry, Darren

Abstract

The paper examines the existence of tax-based dividend clienteles using the novel environment of Australia, which has operated a full dividend imputation system since 1987. The analysis jointly focuses on the tax-based preferences of five categories of shareholders, including both domestic and foreign-domiciled shareholder classes. Incorporating the dividend franking percentage as a direct measure of the degree of tax benefit associated with dividends, strong evidence supporting the existence of tax-based dividend clienteles is present for both domestic and foreign shareholder categories. This includes domestic corporate blockholders and company directors, and local institutional investors following tax reforms in 2000, and foreign institutional shareholders which, alternatively, demand lower dividends and dividend franking. These findings persist after considering the effect of share repurchases, and under various model specifications controlling for unobserved firm heterogeneity and potential endogeneity between ownership structure and dividend payout policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 10 (October)
Pages: 2747-2760

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2747-2760

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Keywords: Dividend clienteles Ownership structure Tax-based preferences Dividend imputation system;

References

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Cited by:
  1. Sugato Chakravarty & Chiraphol N. Chiyachantana & Christine Jiang, 2012. "The Choice of Trading Venue and Relative Price Impact of Institutional Trading: ADRs versus the Underlying Securities in their Local Markets," Working Papers 1012, Purdue University, Department of Consumer Sciences.
  2. repec:csr:wpaper:1014 is not listed on IDEAS

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