The Share Price Effects of Dividend Taxes and Tax Imputation Credits

46 Pages Posted: 11 Jun 2000 Last revised: 17 Apr 2008

See all articles by Trevor S. Harris

Trevor S. Harris

Columbia University - Columbia Business School

R. Glenn Hubbard

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Deen Kemsley

Tulane University - Accounting & Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: December 1999

Abstract

We examine the hypothesis that dividend taxes are capitalized into share prices by focusing on investors' implicit valuations of retained earnings versus paid-in equity. Retained earnings are distributable as taxable dividends, whereas paid-in equity is distributable as a tax-free return of capital. Consistent with dividend tax capitalization, firm-level results for the United States indicate that accumulated retained earnings are valued less per unit than contributed capital. In addition, differences in dividend tax rates across U.S. tax regimes are associated with predictable differences in the magnitude of the implied tax discount for retained earnings, as are differences in dividend tax rates across Australia, Japan, France, Germany, and the United Kingdom.

Suggested Citation

Harris, Trevor S. and Hubbard, Robert Glenn and Kemsley, Deen, The Share Price Effects of Dividend Taxes and Tax Imputation Credits (December 1999). NBER Working Paper No. w7445. Available at SSRN: https://ssrn.com/abstract=227590

Trevor S. Harris (Contact Author)

Columbia University - Columbia Business School ( email )

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Robert Glenn Hubbard

Columbia Business School - Finance and Economics ( email )

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HOME PAGE: http://www.gsb.columbia.edu/faculty/ghubbard

National Bureau of Economic Research (NBER)

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Deen Kemsley

Tulane University - Accounting & Taxation ( email )

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United States

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