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Pricing Firms’ Responsiveness to Shareholder Tax Incentives

45 Pages Posted: 6 Sep 2013 Last revised: 1 Nov 2014

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

Date Written: October 31, 2014

Abstract

We use the anticipated expiration of the Bush tax cuts at the end of 2010 and 2012 to test whether investors value firms’ responsiveness to shareholder tax incentives. This setting provides a shock to the demand for dividends where the signaling implications of dividend announcements are substantially mitigated or absent. We examine the announcement of dividend accelerations and special dividends in November and December of 2010 and 2012, and find evidence that the price reaction is significantly larger than can be explained by tax savings alone. Our evidence is consistent with investors placing a premium on firms that respond to a heightened demand for dividends induced by a tax rate change, consistent with the notion that firms rationally cater to the demand for dividends.

Keywords: special dividend, catering, taxation, signaling

JEL Classification: G35, G38, H2

Suggested Citation

Hribar, Paul and Savoy, Steven and Wilson, Ryan J., Pricing Firms’ Responsiveness to Shareholder Tax Incentives (October 31, 2014). Available at SSRN: https://ssrn.com/abstract=2320816 or http://dx.doi.org/10.2139/ssrn.2320816

Paul Hribar (Contact Author)

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

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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