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Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia

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  • Bhavish Jugurnath
  • Mark Stewart
  • Robert Brooks

Abstract

In recent times a number of countries initiated some important tax reforms to eliminate the distortions of double taxation. In this context, Australia adopted a dividend imputation system in 1987, while the US employed the 1986 Tax Reform Act (TRA). The analysis examines the effect on the level of corporate capital investment on proxies for corporate tax rates, financial leverage, liquidity, capital intensity and firm size after controlling for the tax reforms. The empirical results provide evidence that: (1) dividend imputation as introduced in Australia is an effective way to reduce the distortions caused by the traditional system of taxation. (2) Compared with the TRA, dividend imputation has been better able to positively stimulate corporate capital investment. (3) TRA effect on corporate investment is more pronounced in the US for firms having a net operating loss. (4) Corporate tax rates play a role in corporate investment decision in Australia
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  • Bhavish Jugurnath & Mark Stewart & Robert Brooks, 2008. "Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia," Review of Quantitative Finance and Accounting, Springer, vol. 31(2), pages 209-224, August.
    • Handle: RePEc:kap:rqfnac:v:31:y:2008:i:2:p:209-224
    DOI: 10.1007/s11156-007-0073-4
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    Cited by:

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    2. Claudiu Tiberiu Albulescu, 2020. "Investment Behaviour and Firms’ Financial Performance: A Comparative Analysis Using Firm-Level Data from the Wine Industry," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 9(1), pages 75-94.
    3. Mishra, Anil V. & Ratti, Ronald A., 2014. "Taxation of domestic dividend income and foreign investment holdings," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 218-231.
    4. Ramachandran Azhagaiah & Selvaraj Sathia, 2012. "Corporate Leverage and Financial Decision in the Indian Textile Industry," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(1 (Spring), pages 87-114.
    5. Ashfaq Habib & M. Ishaq Bhatti & Muhammad Asif Khan & Zafar Azam, 2021. "Cash Holding and Firm Value in the Presence of Managerial Optimism," JRFM, MDPI, vol. 14(8), pages 1-18, August.
    6. Shastitko. Andrey (Шаститко, Андрей) & Komkova, Anastasia Andreevna (Комкова, Анастасия Андреевна) & Kurdin, Alexander (Курдин, Александр) & Shastitko, Anastasia (Шаститко, Анастасия), 2016. "Competition Policy and Incentives for Innovation [Конкурентная Политика И Стимулы К Инновационной Деятельности]," Working Papers 1447, Russian Presidential Academy of National Economy and Public Administration.
    7. Jack Francis & Tsing Wu & Nan-Ting Kuo, 2012. "Effects of tax reform on drop-off ratios and on the ex-dividend and ex-right prices," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 147-164, August.
    8. Carmen Bachmann & Martin Baumann & Konrad Richter, 2018. "The effects on investment incentives of an allowance for corporate equity tax system: the Belgian case as an example," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 943-965, November.
    9. Gary, Robert F. & Moore, Jared A. & Sisneros, Craig A. & Terando, William D., 2016. "The impact of tax rate changes on intercorporate investment," Advances in accounting, Elsevier, vol. 34(C), pages 55-63.

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    More about this item

    Keywords

    Corporate investment; Dividend imputation; Tax Reform Act; E62; F21;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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