Dividend Taxes and Firm Valuation: New Evidence

Alan Auerbach and Kevin Hassett

No 11959, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: G12 H22 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-fin, nep-pbe and nep-pub
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Published as Auerbach, Alan J. and Kevin Hassett. "Dividend Taxes and Firm Valuation: New Evidence." American Economic Review (May 2006): 119-123.

Downloads: (external link)
http://www.nber.org/papers/w11959.pdf (application/pdf)

Related works:
Journal Article: Dividend Taxes and Firm Valuation: New Evidence (2006)
Working Paper: Dividend Taxes and Firm Valuation: New Evidence (2006)
Working Paper: Dividend Taxes and Firm Valuation: New Evidence (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:11959

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11959

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().