Do personal taxes affect investment decisions and stock returns?

Alexander P. Kontoghiorghes

Journal of Financial Economics, 2024, vol. 162, issue C

Abstract: This paper studies the causal effects of personal investment taxes on stock returns and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in capital gains and dividend tax-exempt investment accounts for the first time. Using a difference-in-differences approach, I find that excess stock returns decreased by their pre-legislation change effective tax rate, and that firms adjusted their capital structure and increased their spending on dividends, capital, and labour, in-line with the “traditional view” of corporate investment.

Keywords: Market frictions; Personal investment taxes; Cost of capital; After-tax returns; Payout policy; Company investment decisions (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:162:y:2024:i:c:s0304405x24001508

DOI: 10.1016/j.jfineco.2024.103927

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