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Did Dividends Increase Immediately After the 2003 Reduction in Tax Rates?

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  • Jennifer L. Blouin
  • Jana Smith Raedy
  • Douglas A. Shackelford

Abstract

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduces the maximum statutory personal tax rate on dividends from 38.1 percent to 15 percent. This study analyzes dividend declarations in the quarter following passage. Aggregate dividends rose by 9 percent when boards of directors first met following enactment. Consistent with the dividend changes being tax-motivated, they are increasing in the percentage of the firm held by individuals. Dividend changes also increased with insider ownership, consistent with managers acting in their own interests. However, these results are limited primarily to firms that made large, special dividends. We find little evidence of an increase in regular, quarterly dividend payments.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10301.

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Date of creation: Feb 2004
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Handle: RePEc:nbr:nberwo:10301

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  1. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 409-425, December.
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  8. Jennifer L. Blouin & Jana Smith Raedy & Douglas A. Shackelford, 2003. "Capital Gains Taxes and Equity Trading: Empirical Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 611-651, 09.
  9. Franklin Allen & Roni Michaely, 2002. "Payout Policy," Center for Financial Institutions Working Papers 01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Allen, Franklin & Michaely, Roni, 2003. "Payout policy," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429 Elsevier.
  10. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79.
  11. Mary Margaret Frank, 2002. "The Impact of Taxes on Corporate Defined Benefit Plan Asset Allocation," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1163-1190, 09.
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Cited by:
  1. Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2007. "Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut," Journal of Finance, American Finance Association, vol. 62(4), pages 1935-1965, 08.
  2. Randall Morck & Bernard Yeung, 2005. "Dividend Taxation and Corporate Governance," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 163-180, Summer.
  3. Jesse Edgerton, 2010. "Effects of the 2003 dividend tax cut: evidence from real estate investment trusts," Finance and Economics Discussion Series 2010-34, Board of Governors of the Federal Reserve System (U.S.).
  4. Jacob, Martin, 2010. "Taxation, Dividends, and Share Repurchases: Taking Evidence Global," Working Paper Series, Center for Fiscal Studies 2010:10, Uppsala University, Department of Economics.
  5. Korinek, Anton & Stiglitz, Joseph E., 2009. "Dividend taxation and intertemporal tax arbitrage," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 142-159, February.
  6. Christian Keuschnigg & Evelyn Ribi, 2010. "Business Taxation, Corporate Finance and Economic Performance," University of St. Gallen Department of Economics working paper series 2010 2010-04, Department of Economics, University of St. Gallen.

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