Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts

Posted: 11 Sep 2003

See all articles by William M. Gentry

William M. Gentry

Williams College - Department of Economics

Deen Kemsley

Tulane University - Accounting & Taxation

Christopher J. Mayer

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

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Abstract

Prior empirical evidence regarding the impact of dividend taxes on firm valuation is mixed. This study avoids some of the complications encountered in previous empirical work by exploiting institutional characteristics of REITs, such as their limited discretion over dividend policy and the relative transparency of REIT assets. We regress the market value of equity on the market value of assets and tax basis, which creates tax deductions that lower future dividend taxes without affecting future pretax cash flow. We find that firm value is positively related to tax basis, suggesting that future dividend taxes are capitalized into share prices.

Suggested Citation

Gentry, William M. and Kemsley, Deen and Mayer, Christopher J., Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts. Journal of Finance, Vol. 58, pp. 261-282, 2003. Available at SSRN: https://ssrn.com/abstract=377114

William M. Gentry (Contact Author)

Williams College - Department of Economics ( email )

Fernald House
Williamstown, MA 01267
United States
413-597-4257 (Phone)
413-597-4045 (Fax)

Deen Kemsley

Tulane University - Accounting & Taxation ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Christopher J. Mayer

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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