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Dividend Taxes And Firm Valuation
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Book Synopsis Dividend Taxes and Firm Valuation by : Alan J. Auerbach
Download or read book Dividend Taxes and Firm Valuation written by Alan J. Auerbach and published by . This book was released on 2006 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends our previous analysis (Auerbach and Hassett 2005) of the effects of the "Jobs and Growth Tax Relief Act of 2003" on firm valuation. That paper found that firms with higher dividend yields benefited more than other dividend paying firms, a result that, in itself, is consistent with both new and traditional views of dividend taxation. But further evidence favored the new view. We also found that non-dividend-paying "immature" firms experienced larger abnormal returns than other firms and that a similar bonus accrued to firms likely to issue new shares, two results that are consistent with an anticipated transition to higher dividend payments. Here, we extend our earlier analysis in two ways. First, we consider the impact of the 2004 Presidential election on option prices, to gain further insight into and confirmation of the mechanism through which the 2003 legislation affected firm values. Second, we explore in more detail the determinants of the "immaturity premium" noted above. In contrast to claims in a recent paper by Amromin et al. (2005), we find that the premium is associated with the likelihood of new share issuance, as inferred but not demonstrated in our original analysis.
Book Synopsis Dividend and Capital Gains Taxation in Firm Valuation : New Evidence by : Trevor S. Harris
Download or read book Dividend and Capital Gains Taxation in Firm Valuation : New Evidence written by Trevor S. Harris and published by . This book was released on 1997 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dividend Taxes and Firm Valuation by : Michelle Hanlon
Download or read book Dividend Taxes and Firm Valuation written by Michelle Hanlon and published by . This book was released on 2006 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent evidence and statements in Harris and Kemsley (1999) suggests that shareholder-level dividend taxes on retained earnings are fully impounded at the top statutory rate into stock prices. We re-examine these claims and results. Using the traditional definition of dividend tax capitalization, that asset prices will be lower if the asset returns are subject to higher taxation, we reject the claim that the valuation of retained earnings is reduced because it is subject to future taxes when distributed as dividends. Harris and Kemsley base their predictions and empirical tests on Ohlson (1995). We offer alternative formulations and interpretations of the role of contributed capital, retained earnings, and earnings in the Ohlson (1995) model. Our evidence does not reject dividend tax capitalization but does reject full dividend tax capitalization on retained earnings arising from future dividends being paid from the current stock of retained earnings. We also investigate the crucial role of the ratio of retained earnings to book value in Harris and Kemsley (1999) and report some results inconsistent with their interpretation of dividend taxes on retained earnings.
Book Synopsis The Effect of the Relative Tax Treatment of Dividends and Capital Gains on Corporate Valuation and Behavior by : John Karl Scholz
Download or read book The Effect of the Relative Tax Treatment of Dividends and Capital Gains on Corporate Valuation and Behavior written by John Karl Scholz and published by . This book was released on 1988 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Individual-Shareholder-Level Dividend Taxes in Firm Valuation: New Evidence from Taiwan by : 郭南廷
Download or read book Individual-Shareholder-Level Dividend Taxes in Firm Valuation: New Evidence from Taiwan written by 郭南廷 and published by . This book was released on 2011 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dividend Taxes and Share Prices by : William M. Gentry
Download or read book Dividend Taxes and Share Prices written by William M. Gentry and published by . This book was released on 2001 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial economists have debated the impact of dividend taxes on firm valuation for decades, but existing empirical evidence is mixed. In this study, we avoid certain complications inherent in previous empirical work by exploiting institutional characteristics of Real Estate Investment Trusts (REITs). For REITs, dividend policy is largely non-discretionary, share repurchases are not tax advantaged relative to dividends, and the market value of a firm's assets is relatively transparent to investors. In addition, REITs are exempt from corporate taxes, so their tax deductions flow directly to shareholders as reductions in dividend taxes. Within this environment, we regress the market value of a REIT's equity on the market value of its assets and its tax basis in assets, which creates tax deductions that lower future dividend taxes. We find that tax basis has a positive effect on firm value, which suggests that investors capitalize future dividend taxes into share prices
Book Synopsis Dividend Taxes, Corporate Investment, and "Q" by : James M. Poterba
Download or read book Dividend Taxes, Corporate Investment, and "Q" written by James M. Poterba and published by . This book was released on 1981 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Taxes on corporate distributions have traditionally been regarded as a "double tax" on corporate income. This view implies that while the total effective tax rate on corporate source income affects real economic decisions, the distribution of this tax burden between the shareholders and the corporation is irrelevant. Recent research has suggested an alter- native to this traditional view. One explanation of why firms in the U.S. pay dividends in spite of the heavy tax liabilities associated with this form of distribution is that the stock market capitalizes the tax payments associated with corporate distributions. This capitalization leaves investors indifferent at the margin between corporations paying our dividends and retaining earnings. This alternative view holds that while changes in the dividend tax rate will affect shareholder wealth, they will have no impact on corporate investment decisions. This paper develops econometric tests which distinguish between these two views of dividend taxation. By extending Tobin's "q" theory of investment to incorporate taxes at both the corporate and personal levels, the implications of each view for corporate investment decisions can be derived. The competing views may be tested by comparing the performance of investment equations estimates under each theory's predict ions. British time series data are particularly appropriate for testing hypotheses about dividend taxes because of the substantial postwar variation in effective tax rates on corporate distributions. The econometric results suggest that dividend taxes have important effects on investment decisions
Book Synopsis Dividend Taxes and Share Prices by : William M. Gentry
Download or read book Dividend Taxes and Share Prices written by William M. Gentry and published by . This book was released on 2011 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dividend taxes have stimulated decades of debate regarding firm valuation and the cost of equity capital. However, existing evidence is mixed. In this study, we take a new approach to examine the share price effects of dividend taxes that exploits institutional characteristics of Real Estate Investment Trusts (REITs), avoiding some of the complications inherent in previous empirical work. For REITs, dividend policy is largely non-discretionary, share repurchases do not offer tax advantages relative to dividends, and the market value of a firm's assets is relatively transparent to investors. In addition, REITs are exempt from corporate taxes, so their tax deductions flow directly to shareholders as reductions in dividend taxes. Within this environment, we regress the market value of a REIT's equity on the market value of its assets and its tax basis in assets, which creates tax deductions that lower future dividend taxes. We find that tax basis has a positive effect on firm value, which suggests that investors capitalize future dividend taxes into share prices.
Book Synopsis The Share Price Effects of Dividend Taxes and Tax Imputation Credits by : Trevor S. Harris
Download or read book The Share Price Effects of Dividend Taxes and Tax Imputation Credits written by Trevor S. Harris and published by . This book was released on 2011 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relation between shareholder-level taxes and firm value has fundamental implications for understanding why firms pay dividends and how taxes influence capital structure choices. Despite its importance, however, several underlying problems have hampered existing research on the specific question of dividend tax capitalization. We take a new approach, directly testing the relationship between dividend taxes and the valuation of common equity and earnings. Retained earnings are subject to dividend taxes upon distribution, but paid-in equity can be returned to shareholders as a tax-free return of capital. Therefore we test the prediction that dividend taxes result in a lower value for retained earnings than for paid-in equity, after controlling for the predictable influence of dividend taxes on the valuation of earnings. We strengthen this research design by repeating the basic test in several different tax regimes. In the United States, we perform tests for five tax regimes in the 1975-1994 period corresponding to five different levels of dividend taxation. We also conduct tests for the 1984 1994 period for Australia, France, Germany, Japan, and the United Kingdom. The non-U.S. settings allow for comparisons of empirical results across different levels of dividend tax relief provided by tax imputation credits.Our investigation results in three principal findings. First, firm-level results for the United States indicate that accumulated retained earnings are valued less per unit than contributed capital. This finding is consistent with the capitalization of future dividend taxes in retained earnings, and it is robust to inclusion of a variety of control variables and tests for possible alternative explanations. Second, we find that differences in dividend tax rates across U.S. tax regimes are associated with predictable differences in the implied tax discount for retained earnings. Third, cross-country variation in dividend tax rates is associated with predictable variation in the implied tax discount. Furthermore, the difference in dividend tax rates across two different tax regimes in the United Kingdom is associated with predictable differences in the value discount.
Book Synopsis Dividend Policy by : Ronald C. Lease
Download or read book Dividend Policy written by Ronald C. Lease and published by Harvard Business Review Press. This book was released on 2000 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: With relevant anecdotes, surveys, examples, and research from the financial press, company documents, and academic literature, the book focuses less on mathematics and more on the intuition of share valuation as a function of dividend policy.
Book Synopsis New Evidence that Taxes Affect the Valuation of Dividends by : James M. Poterba
Download or read book New Evidence that Taxes Affect the Valuation of Dividends written by James M. Poterba and published by . This book was released on 1984 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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
Book Synopsis Valuation with Personal Taxes Under Different Financing and Dividend Policies by : Johannes Sebastian Sümpelmann
Download or read book Valuation with Personal Taxes Under Different Financing and Dividend Policies written by Johannes Sebastian Sümpelmann and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The valuation of firms is one of the topics that valuation theorists and practitioners have addressed since the early stages of economic sciences. Firm valuations are regularly conducted using discounted cash flow (DCF) models in which expected future cash flows are discounted at capital-market-based cost of capital. In this regard, one of the corporate finance's fundamental insights is that under debt financing the consideration of corporate taxes induces a value enhancing effect on equity market value (Modigliani & Miller, 1958, 1963). Thus, the financing policy of the firm needs to be ta...
Book Synopsis A Review of Taxes and Corporate Finance by : John R. Graham
Download or read book A Review of Taxes and Corporate Finance written by John R. Graham and published by Now Publishers Inc. This book was released on 2006 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: A Review of Taxes and Corporate Finance investigates the consequences of taxation on corporate finance focusing on how taxes affect corporate policies and firm value. A common theme is that tax rules affect corporate incentives and decisions. A second emphasis is on research that describes how taxes affect costs and benefits. A Review of Taxes and Corporate Finance explores the multiple avenues for taxes to affect corporate decisions including capital structure decisions, organizational form and restructurings, payout policy, compensation policy, risk management, and the use of tax shelters. The author provides a theoretical framework, empirical predictions, and empirical evidence for each of these areas. Each section concludes with a discussion of unanswered questions and possible avenues for future research. A Review of Taxes and Corporate Finance is valuable reading for researchers and professionals in corporate finance, corporate governance, public finance and tax policy.
Book Synopsis The Economic Effects of Dividend Taxation by : James M. Poterba
Download or read book The Economic Effects of Dividend Taxation written by James M. Poterba and published by . This book was released on 1984 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests several competing hypotheses about the economic effects of dividend taxation. It employs British data on security returns, dividend payout rates, and corporate investment, because unlike the United States, Britain has experienced several major dividend tax reforms in the last three decades. These tax changes provide an ideal natural experiment for analyzing the effects of dividend taxes. We compare three different views of how dividend taxes affect decisions by firms and their shareholders. We reject the"tax capitalization" view that dividend taxes are non-distortionary lump sum taxes on the owners of corporate capital. We also reject the hypothes is that firms pay dividends because marginal investors are effectively untaxed. We find that the traditional view that dividend taxes constitute a "double-tax" on corporate capital income is most consistent with our empirical evidence. Our results suggest that dividend taxes reduce corporate investment and exacerbate distortions in the intersectoral and intertemporal allocation of capital
Book Synopsis The Economic Effects of Dividend Taxation by : Kenneth James McKenzie
Download or read book The Economic Effects of Dividend Taxation written by Kenneth James McKenzie and published by . This book was released on 1996 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dividend Taxes and Corporate Behavior by : Raj Chetty
Download or read book Dividend Taxes and Corporate Behavior written by Raj Chetty and published by . This book was released on 2004 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the effects of dividend taxation on corporate behavior using the large tax cut on individual dividend income enacted in 2003. Using data spanning 1980 to 2004-Q2, we document a sharp and widespread surge in dividend payments following the tax cut, along several dimensions. First, an unprecedented number of firms initiated regular dividend payments after the reform. As a result, the number of publicly traded firms paying dividends, after having declined continuously for more than two decades, began to increase precisely in 2003. Second, many firms that were already paying dividends prior to the reform raised regular dividend payments significantly. Third, special dividends also rose. All of these effects are robust to introducing controls for profits and other firm characteristics. Additional evidence for specific groups of firms suggests that the tax cut induced increases in total payout rather than substitution between dividends and repurchases. The tax response was confined to firms with lower levels of forecasted growth, consistent with an improvement in capital allocation efficiency. The response to the tax cut was strongest in firms with strong principals whose tax incentives changed (presence of large taxable institutional owners or independent directors with large share holdings), and in firms where agents had stronger incentives to respond (large executive ownership and low levels of executive stock-options outstanding). These findings show that principal-agent issues play a central role in corporate responses to taxation.
Book Synopsis The Effects of Dividend Taxes on Equity Prices by : Stephen Bond
Download or read book The Effects of Dividend Taxes on Equity Prices written by Stephen Bond and published by International Monetary Fund. This book was released on 2007-08-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We re-examine the extent to which personal taxes on dividends are capitalized into the equity prices of domestic firms, using data from around the time of the 1997 U.K. dividend tax reform, which removed a significant tax credit for an important group of investors: U.K. pension funds. The tax-adjusted CAPM suggests that the impact should depend on an average of dividend tax rates across all investors, and that U.K. pension funds should reduce their holdings of the previously tax-favored asset: U.K. equities. Given that U.K. pension funds are small relative to the total size of the world capital market, a small open economy-type argument implies that the main effect of the reform would be to reduce U.K. pension funds' ownership of U.K. equities, with little impact on their price. We present evidence which is consistent with these hypotheses. We discuss why previous research (Bell and Jenkinson, 2002) reached a different conclusion.
