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Dividends and Taxes: A Re-Examination

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  • Avner Kalay
  • Roni Michaely

Abstract

This study re-examines the impact of the differential taxation of dividends and capital gains on assets’ prices. Our analysis shows that the time horizon used to define and measure the dividend period is a key issue when interpreting the empirical results. Our results indicate that most of the return variation previously attributed to dividends is not because of a cross-sectional variation in returns, but due to the time-series variation in returns around the dividend payment. In light of the lack of cross-sectional return variation, interpreting the higher return around the dividend distribution as a tax effect is problematic.

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Bibliographic Info

Article provided by Financial Management Association in its journal Financial Management.

Volume (Year): 29 (2000)
Issue (Month): 2 (Summer)
Pages:

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Handle: RePEc:fma:fmanag:kalay00

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Cited by:
  1. Frankfurter, George M. & Kosedag, Arman & Chiang, Kevin & Collison, David & Power, David M. & Schmidt, Hartmut & So, Raymond & Topalov, Mihail, 2004. "A comparative analysis of perception of dividends by financial managers," Research in International Business and Finance, Elsevier, vol. 18(1), pages 73-114, April.
  2. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-83, September.
  3. Frankfurter, George M. & McGoun, Elton G. & Allen, Douglas E., 2004. "The prescriptive turn in behavioral finance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(4), pages 449-468, September.
  4. Hartzmark, Samuel M. & Solomon, David H., 2013. "The dividend month premium," Journal of Financial Economics, Elsevier, vol. 109(3), pages 640-660.
  5. Fuller, Kathleen P. & Goldstein, Michael A., 2011. "Do dividends matter more in declining markets?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 457-473, June.
  6. Thomas McCluskey & Bruce Burton & David Power, 2007. "Evidence on Irish financial directors' views about dividends," Qualitative Research in Accounting & Management, Emerald Group Publishing, vol. 4(2), pages 115-132, July.
  7. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.

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