New Evidence that Taxes Affect the Valuation of Dividends
This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last twenty-five years. Studying the relationship between dividends and stockprice movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends. Using daily data on a small sample of firms, and monthly data on a much broader sample, we find clear evidence that taxes change equilibrium relationships between dividend yields and market returns. These findings suggest that taxes are important determinants of security market equilibrium, and deepen the puzzle of why firms pay dividends.
|Date of creation:||Feb 1985|
|Date of revision:|
|Publication status:||published as Poterba, James M. and Lawrence H. Summers. "New Evidence that Taxes Affectthe Valuation of Dividends." Journal of Finance, Vol. 39, No. 5, (December 1984), pp. 1397-1415.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Auerbach, Alan J., 1983.
"Stockholder tax rates and firm attributes,"
Journal of Public Economics,
Elsevier, vol. 21(2), pages 107-127, July.
- Jerry R. Green, 1980. "Taxation and the Ex-Dividend Day Behavior of Common Stock Prices," NBER Working Papers 0496, National Bureau of Economic Research, Inc.
- Lakonishok, Josef & Vermaelen, Theo, 1983. " Tax Reform and Ex-Dividend Day Behavior," Journal of Finance, American Finance Association, vol. 38(4), pages 1157-79, September.
- Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
- James M. Poterba & Lawrence H. Summers, 1984.
"The Economic Effects of Dividend Taxation,"
343, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hess, Patrick J, 1982. " The Ex-Dividend Day Behavior of Stock Returns: Further Evidence on Tax Effects," Journal of Finance, American Finance Association, vol. 37(2), pages 445-56, May.
- Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983.
"The effective tax rate and the pretax rate of return,"
Journal of Public Economics,
Elsevier, vol. 21(2), pages 129-158, July.
- Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981. "The Effective Tax Rate and the Pretax Rate of Return," NBER Working Papers 0740, National Bureau of Economic Research, Inc.
- Hess, Patrick J, 1983. "Test for Tax Effects in the Pricing of Financial Assets," The Journal of Business, University of Chicago Press, vol. 56(4), pages 537-54, October.
- Daniel R. Feenberg, 1980.
"Does the Investment Interest Limitation Explain the Existence of Dividends?,"
NBER Working Papers
0530, National Bureau of Economic Research, Inc.
- Feenberg, Daniel, 1981. "Does the investment interest limitation explain the existence of dividends?," Journal of Financial Economics, Elsevier, vol. 9(3), pages 265-269, September.
- Litzenberger, Robert H & Ramaswamy, Krishna, 1982. " The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?," Journal of Finance, American Finance Association, vol. 37(2), pages 429-43, May.
- 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.
- Litzenberger, Robert H & Ramaswamy, Krishna, 1980. " Dividends, Short Selling Restrictions, Tax-Induced Investor Clienteles and Market Equilibrium," Journal of Finance, American Finance Association, vol. 35(2), pages 469-82, May.
- Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
- Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December.
- Roger H. Gordon & David F. Bradford, 1980.
"Taxation and the stock market valuation of capital gains and dividends : Theory and emphirical results,"
in: Econometric Studies in Public Finance, pages 109-136
National Bureau of Economic Research, Inc.
- Gordon, Roger H. & Bradford, David F., 1980. "Taxation and the stock market valuation of capital gains and dividends : Theory and emphirical results," Journal of Public Economics, Elsevier, vol. 14(2), pages 109-136, October.
- Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
- Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
- Elton, Edwin & Gruber, Martin & Rentzler, Joel, 1983. "A simple examination of the empirical relationship between dividend yields and deviations from the CAPM," Journal of Banking & Finance, Elsevier, vol. 7(1), pages 135-146, March.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1288. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.