Taxes and Dividend Policy Under Alternative Tax Regimes

38 Pages Posted: 22 Nov 2004

See all articles by Kerry R. Pattenden

Kerry R. Pattenden

University of Sydney Business School; Financial Research Network (FIRN)

Garry J. Twite

University of Melbourne - Department of Finance; University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Date Written: September 16, 2007

Abstract

This paper examines changes in corporate dividend policy around the introduction of a dividend imputation tax system. This represented a significant change to the Australian tax framework and allows us to test the effect of differential taxation on corporate dividend policy. Consistent with the tax preference for the distribution of dividends, we find dividend initiations, all dividend payout measures and dividend reinvestment plans increased with the introduction of dividend imputation. Similarly we find that gross dividend payouts are more volatile under dividend imputation. Finally, we find that the increase in dividend payout and initiations differs across firms. In particular, we find that the higher the level of available franking tax credits the higher the firm's gross dividend payout and the more likely the firm is to initiate a dividend.

Keywords: Dividend policy, Taxes, Dividend imputation

JEL Classification: G35; H25

Suggested Citation

Pattenden, Kerry R. and Twite, Garry J. and Twite, Garry J., Taxes and Dividend Policy Under Alternative Tax Regimes (September 16, 2007). Available at SSRN: https://ssrn.com/abstract=622003 or http://dx.doi.org/10.2139/ssrn.622003

Kerry R. Pattenden

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Garry J. Twite (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

University of Melbourne - Faculty of Business and Economics ( email )

Department of Finance
Melbourne, VIC 3010
Australia
+61 3 90356172 (Phone)

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia