Taxation and the Stock Market Valuation of Capital Gains and Dividends: Theory and Empirical Results (Rev) / Roger H. Gordon, David F. Bradford.

Format:

Book

Author/Creator:

Gordon, Roger H.

Contributor:

National Bureau of Economic Research.

Bradford, David F.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0409.

NBER working paper series no. w0409

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Taxation and the Stock Market Valuation of Capital Gains and Dividends Theory and Empirical Results

Taxation and the Stock Market Valuation of Capital Gains and Dividends

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1979.

Summary:

Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect. In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholders pay a heavier tax on dividends. We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.

Notes:

Print version record

November 1979.