Abstract

http://ssrn.com/abstract=954572
 
 

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Managerial Response to the May 2003 Dividend Tax Cut


Campbell R. Harvey


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Alon Brav


Duke University - Fuqua School of Business

John R. Graham


Duke University; NBER

Roni Michaely


Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)

August 9, 2007


Abstract:     
We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut on corporate payout policy. We find that the tax cut led to initiations and dividend increases at some firms, weakly more so at firms for which retail investors are particularly important. However, financial executives say that the tax rate reduction ranks behind stability of future cash flows and cash holdings (and for firms already paying dividends, taxes also rank behind the historic level of dividends) in a list of factors that affect dividend policy. Tax effects are of roughly the same importance as attracting institutional investors and the availability of profitable investments. We also search press releases and find that the dividend tax cut is only occasionally mentioned as the reason for an initiation, especially from 2004 onward. Overall, the evidence indicates that dividend tax rates are a second-order concern in setting payout policy.

Number of Pages in PDF File: 34

Keywords: Payout, Dividend policy, Share repurchases, Tax cut, Press Release

JEL Classification: G35, G32, G34

working papers series


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Date posted: January 23, 2007  

Suggested Citation

Harvey, Campbell R. and Brav, Alon and Graham, John R. and Michaely, Roni, Managerial Response to the May 2003 Dividend Tax Cut (August 9, 2007). Available at SSRN: http://ssrn.com/abstract=954572 or http://dx.doi.org/10.2139/ssrn.954572

Contact Information

Campbell R. Harvey
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Alon Brav
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)
John Robert Graham (Contact Author)
Duke University ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Roni Michaely
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
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References:  15
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