Year: 1984
Type: report
Abstract: 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 stock price nxvements 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 inth1y data on a xrnich 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.
DOI: 10.3386/w1288
Authors: James Poterba, Lawrence Summers
Institutions: Massachusetts Institute of Technology, Harvard University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2890206485