The Share Price Effects of Dividend Taxes and Tax Imputation Credits

T.S. Harris, Robert Glenn Hubbard () and D. Kemsley

Working Papers from Columbia - Graduate School of Business

Abstract: We examine the hypothesis that dividend taxes are capitalized into share prices by focusing on investors= implicit valuations of retained earnings versus paid-in equity. Retained earnings are distributable as taxable dividends, whereas paid-in equity is distributable as a tax-free return of capital. Consistent with dividend tax capitalization, firm-level results for the United States indicate that accumulated retained earnings are valued less per unit than contributed capital. In addition, differences in dividend tax rates across U.S. tax regimes are associated with predictable differences in the magnitude of the implied tax discount for retained earnings, as are differences in dividend tax rates across Australia, Japan, France, Germany, and the United Kingdom.

Keywords: DIVIDENDS; TAXES; PRICES (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2000

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Working Paper: The Share Price Effects of Dividend Taxes and Tax Imputation Credits (1999)
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