Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes

Jennifer Blouin, Jana Raedy and Douglas Shackelford ()

No 16129, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors and officers, but not other individual investors, rebalanced their portfolios to maximize after-tax returns in light of the new tax rules. We also find that firms adjusted their distribution policy (specifically, dividends versus share repurchases) in a manner consistent with the altered tax incentives for individual investors. To our knowledge, this is the first paper to employ simultaneous equations to estimate both investor and managerial responses to the 2003 rate reductions. We find that estimating a system of equations leads to different inferences.

JEL-codes: G34 G35 H24 K34 (search for similar items in EconPapers)
Date: 2010-06
Note: PE
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Citations: View citations in EconPapers (22)

Published as Blouin, Jennifer L., Jana S. Raedy, and Douglas A. Shackelford, “Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes,” The Accounting Review 86:3, May 2011, 887-914 .

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