Dividends and Taxes: A Re-Examination
Tel Aviv University - Faculty of Management; University of Utah - David Eccles School of Business
Johnson@Cornell Tech, Cornell University
Financial Management, Vol. 29, No. 2, Summer 2000
This study re-examines the impact of the differential taxation of dividends and capital gains on assets' prices. Our analysis shows that the time horizon used to define and measure the dividend period is a key issue when interpreting the empirical results. Our results indicate that most of the return variation previously attributed to dividends is not because of a cross-sectional variation in returns, but due to the time-series variation in returns around the dividend payment. In light of the lack of cross-sectional return variation, interpreting the higher return around the dividend distribution as a tax effect is problematic.
Date posted: June 14, 2001