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Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts

Author

Listed:
  • William M. Getry

    (Graduate School of Business, Columbia University, and the National Bureau of Economic Research,)

  • Deen Kemsley

    (Graduate School of Business, Columbia University, and the School of Management, Yale University,)

  • Christopher J. Mayer

    (The Wharton School at the University of Pennsylvania)

Abstract

Prior empirical evidence regarding the impact of dividend taxes on firm valuation is mixed. This study avoids some of the complications encountered in previous empirical work by exploiting institutional characteristics of REITs, such as their limited discretion over dividend policy and the relative transparency of REIT assets. We regress the market value of equity on the market value of assets and tax basis, which creates tax deductions that lower future dividend taxes without affecting future pretax cash flow. We find that firm value is positively related to tax basis, suggesting that future dividend taxes are capitalized into share prices. Copyright 2003 by the American Finance Association.

Suggested Citation

  • William M. Getry & Deen Kemsley & Christopher J. Mayer, 2003. "Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts," Journal of Finance, American Finance Association, vol. 58(1), pages 261-282, February.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:1:p:261-282
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    References listed on IDEAS

    as
    1. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February.
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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