Abstract

http://ssrn.com/abstract=2320816
 


 



Pricing Firms’ Responsiveness to Shareholder Tax Incentives


Paul Hribar


University of Iowa - Henry B. Tippie College of Business

Steven Savoy


University of Iowa - Department of Accounting

Ryan J. Wilson


University of Oregon - Lundquist College of Business

September 2, 2013


Abstract:     
We use the fiscal cliff and the expiration of the Bush tax cuts at the end of 2012 to test whether investors value firms’ responsiveness to the demand for dividends. We examine the three-day stock price reaction to the announcement of special dividends and dividend accelerations in November and December of 2012. This setting provides a shock to the demand for dividends where the signaling implications of dividend announcements are substantially mitigated or absent. We find evidence that the price reaction to both special dividends and dividend accelerations is significantly larger than would be explained by tax savings alone. We also find evidence that firms who do not respond to this demand yet appear to have the resources to do so experience significantly negative abnormal returns. The magnitude of the difference in market reaction between payers and non-payers is significantly greater than the maximum economic benefits from the potential tax savings. Overall, our evidence is consistent with investors placing a premium on firms that respond to shareholder demands for a return of capital, consistent with the notion that firms rationally cater to the demand for dividends.

Number of Pages in PDF File: 44

Keywords: special dividend, catering, dividend taxes, dividend acceleration, fiscal cliff

JEL Classification: G35, G38, G32

working papers series





Download This Paper

Date posted: September 6, 2013  

Suggested Citation

Hribar, Paul and Savoy, Steven and Wilson, Ryan J., Pricing Firms’ Responsiveness to Shareholder Tax Incentives (September 2, 2013). Available at SSRN: http://ssrn.com/abstract=2320816 or http://dx.doi.org/10.2139/ssrn.2320816

Contact Information

Paul Hribar
University of Iowa - Henry B. Tippie College of Business ( email )
Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)
Steven Savoy
University of Iowa - Department of Accounting ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
Ryan J. Wilson (Contact Author)
University of Oregon - Lundquist College of Business ( email )
1280 University of Oregon
Eugene, OR 97403
United States
Feedback to SSRN


Paper statistics
Abstract Views: 318
Downloads: 71
Download Rank: 197,559

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.344 seconds