New Evidence that Taxes Affect the Valuation of Dividends

Abstract

This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains.British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last twenty-five years.Studying the relationship between dividends and stock price nxvements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends.Using daily data on a small sample of firms, and inth1y data on a xrnich broader sample, we find clear evidence that taxes change equilibrium relationships between dividend yields and market returns.These findings suggest that taxes are important determinants of security market equilibrium, and deepen the puzzle of why firms pay dividends.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 20 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.