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

  • 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)

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.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 58 (2003)
Issue (Month): 1 (02)
Pages: 261-282

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Handle: RePEc:bla:jfinan:v:58:y:2003:i:1:p:261-282
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  18. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
  19. Su Han Chan & Wai Kin Leung & Ko Wang, 1998. "Institutional Investment in REITs: Evidence and Implications," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 357-374.
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