Dividends and Taxes: A Re-Examination

Financial Management, Vol. 29, No. 2, Summer 2000

Posted: 14 Jun 2001  

Avner Kalay

Tel Aviv University - Faculty of Management; University of Utah - David Eccles School of Business

Roni Michaely

Johnson@Cornell Tech, Cornell University

Abstract

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.

Suggested Citation

Kalay, Avner and Michaely, Roni, Dividends and Taxes: A Re-Examination. Financial Management, Vol. 29, No. 2, Summer 2000. Available at SSRN: https://ssrn.com/abstract=267727

Avner Kalay (Contact Author)

Tel Aviv University - Faculty of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel
972 3 6406298 (Phone)
972 3 6406330 (Fax)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
801-581-5457 (Phone)

Roni Michaely

Johnson@Cornell Tech, Cornell University ( email )

111 8th Avenue #302
New York, NY 10011
United States

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