New Evidence that Taxes Affect the Valuation of Dividends / James M. Poterba, Lawrence H. Summers.

Format:

Book

Author/Creator:

Poterba, James M.

Contributor:

National Bureau of Economic Research.

Summers, Lawrence H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1288.

NBER working paper series no. w1288

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last twenty-five years. Studying the relationship between dividends and stockprice movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends. Using daily data on a small sample of firms, and monthly data on a much broader sample, we find clear evidence that taxes change equilibrium relationships between dividend yields and market returns. These findings suggest that taxes are important determinants of security market equilibrium, and deepen the puzzle of why firms pay dividends.

Notes:

Print version record

March 1984.