Dividend Imputation and Shareholder Wealth: The Case of New Zealand

26 Pages Posted: 26 Jan 2003

See all articles by Andrew K. Prevost

Andrew K. Prevost

University of Vermont

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance

John D. Wagster

Wayne State University

Abstract

On April 1, 1988, New Zealand stopped the double taxation of dividends by implementing a full dividend imputation program. Because many believed that the tax advantage of debt had led to more highly leveraged firms subject to greater financial risk than was socially optimal, it was hoped the removal of incentives to finance with debt would result in a more efficient allocation of capital. The empirical results suggest that the shareholder wealth gain from dividend imputation was more than offset in firms with large debt levels. Moreover, an examination of debt ratios indicates debt levels declined in the post-imputation period.

JEL Classification: H25, M41, G32, G35

Suggested Citation

Prevost, Andrew K. and Rao, Ramesh P. and Wagster, John D., Dividend Imputation and Shareholder Wealth: The Case of New Zealand. Journal of Business Finance & Accounting, Vol. 29, pp. 1079-1104, 2002. Available at SSRN: https://ssrn.com/abstract=333921

Andrew K. Prevost

University of Vermont ( email )

Burlington, VT 05405
United States

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-1385 (Phone)
405-744-5180 (Fax)

John D. Wagster (Contact Author)

Wayne State University ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
313-577-4537 (Phone)
313-577-0058 (Fax)

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