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Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia

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  • Bhavish Jugurnath
  • Mark Stewart

    ()

  • Robert Brooks

Abstract

In recent times a number of countries initiated some important tax reforms to eliminate the distortions of double taxation. In this context, Australia adopted a dividend imputation system in 1987, while the US employed the 1986 Tax Reform Act (TRA). The analysis examines the effect on the level of corporate capital investment on proxies for corporate tax rates, financial leverage, liquidity, capital intensity and firm size after controlling for the tax reforms. The empirical results provide evidence that: (1) dividend imputation as introduced in Australia is an effective way to reduce the distortions caused by the traditional system of taxation. (2) Compared with the TRA, dividend imputation has been better able to positively stimulate corporate capital investment. (3) TRA effect on corporate investment is more pronounced in the US for firms having a net operating loss. (4) Corporate tax rates play a role in corporate investment decision in Australia

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s11156-007-0073-4
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Bibliographic Info

Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 31 (2008)
Issue (Month): 2 (August)
Pages: 209-224

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Handle: RePEc:kap:rqfnac:v:31:y:2008:i:2:p:209-224

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Web page: http://springerlink.metapress.com/link.asp?id=102990

Related research

Keywords: Corporate investment; Dividend imputation; Tax Reform Act; E62; F21;

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  1. Fama, Eugene F, 1974. "The Empirical Relationships Between the Dividend and Investment Decisions of Firms," American Economic Review, American Economic Association, vol. 64(3), pages 304-18, June.
  2. Higgins, Robert C., 1972. "The Corporate Dividend-Saving Decision," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(02), pages 1527-1541, March.
  3. Seppo Kari & Jouko Ylä-Liedenpoha, 2002. "Classical Corporation Tax as a Global Means of Tax Harmonization," CESifo Working Paper Series 665, CESifo Group Munich.
  4. McCabe, George M., 1979. "The Empirical Relationship Between Investment and Financing: A New Look," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(01), pages 119-135, March.
  5. Simon Gilchrist & Charles P. Himmelberg, 1995. "Evidence on the Role of Cash Flow for Investment," Working Papers 95-01, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Gupta, Sanjay & Newberry, Kaye, 1997. "Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data," Journal of Accounting and Public Policy, Elsevier, vol. 16(1), pages 1-34.
  7. Randall Morck, 2003. "Why Some Double Taxation Might Make Sense: The Special Case of Inter-corporate Dividends," NBER Working Papers 9651, National Bureau of Economic Research, Inc.
  8. Abrutyn, Stephanie & Turner, Robert W., 1990. "Taxes and Firms' Dividend Policies: Survey Results," National Tax Journal, National Tax Association, vol. 43(4), pages 491-96, December .
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Cited by:
  1. Ramachandran Azhagaiah & Selvaraj Sathia, 2012. "Corporate Leverage and Financial Decision in the Indian Textile Industry," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(1 (Spring), pages 87-114.

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