Is a Dividend Tax Penalty Incorporated into the Return on a Firm's Common Stock?

Posted: 29 Jan 2003

See all articles by Dan S. Dhaliwal

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Oliver Zhen Li

National University of Singapore (NUS)

Robert Trezevant

University of Southern California - Leventhal School of Accounting

Abstract

We find that a firm's dividend yield has a positive impact on its common stock return that is decreasing in the level of institutional and corporate ownership, our indicator of whether the marginal investor in a firm's common stock is more likely to be a low-tax or a high-tax investor. These results suggest that 1) a dividend tax penalty is incorporated into the return on a firm's common stock and 2) both a firm's dividend policy and its ownership structure impact the size of the dividend tax penalty.

Keywords: taxes, dividend tax capitalization, expected return on common stocks

JEL Classification: G12, G35, H24

Suggested Citation

Dhaliwal, Dan S. and Li, Oliver Zhen and Trezevant, Robert, Is a Dividend Tax Penalty Incorporated into the Return on a Firm's Common Stock?. Journal of Accounting and Economics, Vol. 35, No. 2, April 2003. Available at SSRN: https://ssrn.com/abstract=375000

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Oliver Zhen Li

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Robert Trezevant (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5013 (Phone)
213-747-2815 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,685
PlumX Metrics