The Corporate Response to the 2003 Dividend Tax Cut

10 Pages Posted: 24 Aug 2006

See all articles by Shelly Howton

Shelly Howton

Villanova University - School of Business

Shawn D. Howton

Villanova University - Department of Finance

Abstract

In 2003, the tax rate on dividends was reduced from 35% to 15%. The crafters of the tax reduction and the popular press have suggested that the corporate response to the tax cut was immediate, and that firms began increasing dividend payments as a result of the lower tax rate soon after the law was passed. We compare 2003 and 2004 dividend tax policy to those of the previous four years for firms in the S&P 500 and find mixed evidence of these firms changing their tax policy in the aggregate. Firms with high earnings and low investment opportunities were the most likely to increase dividends in response to the tax change.

JEL Classification: G35, G38

Suggested Citation

Howton, Shelly W. and Howton, Shawn D., The Corporate Response to the 2003 Dividend Tax Cut. Journal of Applied Finance, Vol. 16, No. 1, Spring/Summer 2006, Available at SSRN: https://ssrn.com/abstract=926174

Shelly W. Howton (Contact Author)

Villanova University - School of Business ( email )

Dept. of Finance
Villanova, PA 19085
United States
610-519-6111 (Phone)
610-519-6881 (Fax)

Shawn D. Howton

Villanova University - Department of Finance ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States

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