Are Shareholder Dividend Taxes on Corporate Retained Earnings Impounded in Equity Prices?: Additional Evidence and Analysis
Posted: 29 Jan 2003
The purpose of this paper is to evaluate the model used by Harris and Kemsley (1999), Harris, Hubbard and Kemsley (2001) and Collins and Kemsley (2000), hereafter CHHK, and to investigate their empirical results. We demonstrate that the model underlying CHHK is flawed, and show that their interpretation of the data is incorrect. Finally, we find that after controlling for market to book ratio, Harris and Kemsley's first main result vanishes. In total, we reject CHHK's conclusions that equity prices are discounted for shareholder dividend taxes on retained earnings.
Keywords: taxes, dividends, tax capitalization
JEL Classification: G12, H24, G35
Suggested Citation: Suggested Citation