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Direct evidence of dividend tax clienteles

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  • Dahlquist, Magnus
  • Robertsson, Göran
  • Rydqvist, Kristian

Abstract

The paper is the first to evaluate the dividend tax clientele hypothesis using a data set of all domestic stock portfolios in the market. We find that investment funds that face a higher effective tax rate on dividend income than on capital gains tilt their portfolios away from dividend-paying stocks. These investors consequently earn a dividend yield that is about 35 basis points lower than that of investors who are tax neutral between dividends and capital gains (pension funds, unit-linked insurance, life insurance). Consistent with tax rules and charter provisions, we also find that private corporations prefer growth stocks, that foundations exhibit strong dividend preferences, and that partnerships rarely hold stocks portfolios.

Suggested Citation

  • Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2014. "Direct evidence of dividend tax clienteles," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 1-12.
  • Handle: RePEc:eee:empfin:v:28:y:2014:i:c:p:1-12
    DOI: 10.1016/j.jempfin.2014.05.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Giovanna Nicodano & Luca Regis, 2015. "Ownership, Taxes and Default," Working Papers 7/2015, IMT Institute for Advanced Studies Lucca, revised Jul 2015.
    2. Kim, Jae H. & Ji, Philip Inyeob, 2015. "Significance testing in empirical finance: A critical review and assessment," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 1-14.
    3. repec:eee:pacfin:v:46:y:2017:i:pb:p:269-291 is not listed on IDEAS
    4. Giovanna Nicodano & Luca Regis, 2014. "Complex organizations, tax policy and financial stability," Carlo Alberto Notebooks 359, Collegio Carlo Alberto, revised 2015.
    5. Martijn Boermans & Rients Galema, 2017. "Pension funds carbon footprint and investment trade-offs," DNB Working Papers 554, Netherlands Central Bank, Research Department.
    6. Berezinets, I. & Ilina, Y. & Alekseeva, L., 2014. "Ownership structure and dividend policy: A study of Russian public companies with dual class shares," Working Papers 6384, Graduate School of Management, St. Petersburg State University.
    7. Giovanna Nicodano & Luca Regis, 2017. "A Trade-off Theory of Ownership and Capital Structure," Working papers 045, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

    More about this item

    Keywords

    After-tax CAPM; Stock ownership; Institutional investors; Private corporations; Foundations; Partnerships;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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