Dividend Tax Capitalization: Clarifications and Responses to Recent Challenges
Recent studies by Dhaliwal et al. (2001) and Hanlon, Myers, and Shevlin (2001) raise questions regarding the dividend tax capitalization results in several of my prior studies. In this paper, I clarify the basic concepts underlying dividend tax capitalization and I provide point-by-point responses to the key concerns raised. I demonstrate that there are simple, unambiguous answers to each of the expressed concerns. I also demonstrate that the new evidence provided by Dhaliwal et al. (2001) and Hanlon, Myers, and Shevlin (2001) actually provides addtional support for dividend tax capitalization.
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