New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor

34 Pages Posted: 20 Sep 2001

See all articles by Leonie Bell

Leonie Bell

University of Oxford - Department of Economics

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2001

Abstract

This Paper examines the impact of a major change in dividend taxation introduced in the UK in July 1997. The reform was structured in such a way that the immediate impact fell almost entirely on the largest investor class in the UK, namely pension funds. We analyse the behaviour of share prices around the ex-dividend day both before and after the reform to test clientele effects and the impact of taxation on the valuation of companies. We find strong clientele effects in the UK, which are consistent with the distortions introduced by the tax system (before the reform dividend income was tax-advantaged in the UK). We also find significant changes in the valuation of dividend income after the reform, in particular for high-yielding companies. These results provide strong support for the hypothesis that taxation affects the valuation of companies, and that pension funds were the effective marginal investors for high-yielding companies.

Keywords: Dividend taxation, equity valuation

JEL Classification: G12

Suggested Citation

Bell, Leonie and Jenkinson, Tim, New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor (September 2001). CEPR Discussion Paper No. 2946. Available at SSRN: https://ssrn.com/abstract=283691

Leonie Bell (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road
Oxford OX1 3UL
United Kingdom

Tim Jenkinson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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