This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

How did the 2003 dividend tax cut affect stock prices?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Eugene Amromin
Paul Harrison
Steven Sharpe

Additional information is available for the following registered author(s):

Abstract

We test the hypothesis that the 2003 dividend tax cut boosted U.S. stock prices and thus lowered the cost of equity. Using an event- study methodology, we attempt to identify an aggregate stock market effect by comparing the behavior of U.S. common stock prices to that of European stocks and real estate investment trusts. We also examine the relative cross-sectional response of prices on high-dividend versus low-dividend paying stocks. We do not find any imprint of the dividend tax cut news on the value of the aggregate U.S. stock market. On the other hand, high-dividend stocks outperformed low-dividend stocks by a few percentage points over the event windows, suggesting that the tax cut did induce asset reallocation within equity portfolios. Finally, the positive abnormal returns on non-dividend paying U.S. stocks in 2003 do not appear to be tied to tax-cut news.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.chicagofed.org/publications/workingpapers/wp2006_17.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-06-17.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:fip:fedhwp:wp-06-17

Contact details of provider:
Postal: P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834
Phone: 312/322-5111
Fax: 312/322-5515
Email:
Web page: http://www.chicagofed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.frbchi.org/pubs-speech/publications/print_order_script.html

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Taxation ; Stock - Prices;

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
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. James Poterba, 2004. "Taxation and Corporate Payout Policy," NBER Working Papers 10321, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. John R. Graham & Roni Michaely & Michael R. Roberts, 2003. "Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex-Dividend Pricing before and after Decimalization," Journal of Finance, American Finance Association, vol. 58(6), pages 2611-2636, December. [Downloadable!] (restricted)
  3. Alan J. Auerbach & Kevin A. Hassett, 2000. "On the Marginal Source of Investment Funds," NBER Working Papers 7821, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Alan J. Auerbach & Kevin A. Hassett, 2006. "Dividend Taxes and Firm Valuation: New Evidence," NBER Working Papers 11959, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier. [Downloadable!] (restricted)
    Other versions:
Full references

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. Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2006. "Executive financial incentives and payout policy: firm responses to the 2003 dividend tax cut," Finance and Economics Discussion Series 2006-14, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  2. Clemens Sialm, 2006. "Investment Taxes and Equity Returns," NBER Working Papers 12146, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alan J. Auerbach & Kevin A. Hassett, 2006. "Dividend Taxes and Firm Valuation: New Evidence," NBER Working Papers 11959, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Statistics
Access and download statistics

Did you know? To receive notification of recent additions to the database, subscribe to the free NEP reports.

This page was last updated on 2009-11-18.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.