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Dissecting dividend decisions: some clues about the effects of dividend taxation from recent UK reforms

  • Steve Bond

    ()

    (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Michael Devereux

    ()

    (Institute for Fiscal Studies and University of Oxford)

  • Alexander Klemm

    (Institute for Fiscal Studies)

We present empirical evidence which suggests that a big increase in dividend taxation for UK pension funds in July 1997 affected the form in which some UK companies chose to make dividend payments, but otherwise had limited effects on both the level of dividend payments and the level of investment. These findings are consistent with a version of the 'new view' of dividend taxation. We also identify a group of firms whose dividend choices are difficult to reconcile with (stock market) value maximisation.

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File URL: http://www.ifs.org.uk/wps/wp0517.pdf
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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W05/17.

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Length: 50 pp.
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:ifs:ifsewp:05/17
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References listed on IDEAS
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  1. Stephen Bond & Alexander Klemm & Rain Newton-Smith & Murtaza Syed & Gertjan Vlieghe, 2004. "The roles of expected profitability, Tobin's Q and cash flow in econometric models of company investment," Bank of England working papers 222, Bank of England.
  2. Michael Devereux, 1991. "Corporation Tax Asymmetries and Investment: Evidence from UK Panel Data," Working Papers 820, Queen's University, Department of Economics.
  3. Auerbach, Alan J. & Hassett, Kevin A., 2003. "On the marginal source of investment funds," Journal of Public Economics, Elsevier, vol. 87(1), pages 205-232, January.
  4. King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
  5. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  6. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  7. Hayashi, Fumio, 1985. "Corporate finance side of the Q theory of investment," Journal of Public Economics, Elsevier, vol. 27(3), pages 261-280, August.
  8. Steve Bond & Jason Cummins, 2001. "Noisy share prices and the Q model of investment," IFS Working Papers W01/22, Institute for Fiscal Studies.
  9. Auerbach, Alan J, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 433-46, August.
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