Shareholder Income Taxes and the Relation between Earnings and Returns

Posted: 15 Apr 2005

See all articles by Dan S. Dhaliwal

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Merle Erickson

University of Chicago - Booth School of Business

Oliver Zhen Li

National University of Singapore (NUS)

Abstract

The purpose of this study is to investigate if and how shareholder level taxes affect earnings response coefficients (ERCs). Our tests indicate that when the tax rate on dividends increases, ERCs decrease for firms with high dividend yield and whose marginal investor is likely to be an individual. For firms with high share repurchase yield and whose marginal investor is likely to be an individual, an increase in dividend tax rate has no discernable effect on ERCs. These results are consistent with the notion that the tax penalty on dividends, relative to capital gains, reduces the earnings-return relation.

JEL Classification: G12, H24, G35, M41

Suggested Citation

Dhaliwal, Dan S. and Erickson, Merle and Li, Oliver Zhen, Shareholder Income Taxes and the Relation between Earnings and Returns. Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=689021

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Merle Erickson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-0716 (Phone)
773-702-0458 (Fax)

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,512
PlumX Metrics