Tax Driven One-Time Dividends and the Managerial Discretion Hypothesis - New Evidence from Germany

20 Pages Posted: 8 Jun 2003

See all articles by Christoph Kaserer

Christoph Kaserer

Technische Universität München (TUM)

Stephanie Roos

University of Würzburg - Business Administration & Economics

Ekkehard Wenger

University of Wuerzburg

Date Written: December 2002

Abstract

There is an ongoing debate in the literature whether the positive stock price effects to the announcement of a dividend increase or a share repurchase should be explained by the information-signalling hypothesis or the managerial discretion hypothesis of by both of them. We propose a new study where the relevance of the managerial discretion hypothesis in explaining stock market reactions to pay-out announcements could be directly tested. For that purpose we analyse the announcement effects of one-time dividend payments by listed German companies. These dividends were paid in order to realise a tax saving opportunity for the shareholders caused by a revision of the German tax code. As the firms did no have much discretion in timing the disbursement, the event by itself should not have any informational impact. It will be shown that over a period of %B1 3 months around the announcement date the abnormal stock price effect is 3.4 to 4.6 times as high as the mere tax saving effect induced by the one-time dividend payment. Moreover, according to the managerial discretion hypothesis we find the stock price effect to be significantly lower for those companies generating the tax saving without paying out cash to shareholders.

JEL Classification: G14, G32, G35

Suggested Citation

Kaserer, Christoph and Roos, Stephanie and Wenger, Ekkehard, Tax Driven One-Time Dividends and the Managerial Discretion Hypothesis - New Evidence from Germany (December 2002). EFMA 2003 Helsinki Meetings. Available at SSRN: https://ssrn.com/abstract=302127 or http://dx.doi.org/10.2139/ssrn.302127

Christoph Kaserer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

Stephanie Roos

University of Würzburg - Business Administration & Economics ( email )

Sanderring 2
Wuerzburg, D-97070
Germany
(0931) 31-2932 (Phone)
(0931) 31-2582 (Fax)

Ekkehard Wenger

University of Wuerzburg

Sanderring 2
Wuerzburg, 97070
Germany
011-61-931-312931 (Phone)
011-61-931-59643 (Fax)

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