Dividend Taxation and the Cost of New Share Issues

Tobias Lindhe and Jan Södersten ()

FinanzArchiv: Public Finance Analysis, 2016, vol. 72, issue 2, 158-174

Abstract: It has generally been accepted in earlier research that the dividend tax reduces the rate of return to investments financed by new issues of equity, and hence raises the cost of capital. Still, and virtually without discussion, the existing literature has come to widely diverging conclusions about the size of the tax distortion. We demonstrate that the extent to which shareholders can recover their original equity injections without being subject to tax is a key factor in determining the cost of new equity. Our analysis explains for the first time why the earlier literature has come to diverging conclusions about the size of the tax distortion.

Keywords: dividend taxation; return of original equity; cost of capital; nucleus theory; growth path (search for similar items in EconPapers)
JEL-codes: H24 H25 H32 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Dividend Taxation and the Cost of New Share Issues (2014)
Working Paper: Dividend Taxation and the Cost of New Share Issues (2014)
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DOI: 10.1628/001522108X14617591044613

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