The "Jobs and Growth Tax Relief Act of 2003" (JGTRA03) contained a number of significant tax provisions, but the most noteworthy may have been the reduction in dividend tax rates. The political debate over the dividend tax reductions of 2003 took a number of surprising twists and turns. Accordingly, it is likely that the views of market participants concerning the probability of significant dividend tax reduction fluctuated significantly during 2003. In this paper, we use this fact to estimate the effects of dividend tax policy on firm value. We find that firms with higher dividend yields benefited more than other dividend paying firms, a result that, in itself, is consistent with both new and traditional views of dividend taxation. But further evidence points toward the new view and away from the traditional view. We also find that non-dividend-paying firms experienced larger abnormal returns than other firms as the result of the dividend tax cut, and that a similar bonus accrued to firms likely to issue new shares, two results that may appear surprising at first but are consistent with the theory developed in the paper.
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11449.
Length: Date of creation: Jul 2005 Date of revision: Handle: RePEc:nbr:nberwo:11449
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Find related papers by JEL classification: G12 - Financial Economics - - General Financial Markets - - - Asset Pricing H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
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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.
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Alan J. Auerbach & Michael P. Devereux & Helen Simpson, 2008.
"Taxing Corporate Income,"
NBER Working Papers
14494, National Bureau of Economic Research, Inc.
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Alan Auerbach & Michael P Devereux & Helen Simpson, 2007.
"Taxing corporate income,"
Working Papers
0705, Oxford University Centre for Business Taxation.
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