Are shareholder dividend taxes on corporate retained earnings impounded in equity prices? Additional evidence and analysis

Dhaliwal, Dan S.; Erickson, Merle; Frank, Mary Margaret; Banyi, Monica

doi:10.1016/s0165-4101(03)00018-1

Cited by 31 publications

(23 citation statements)

References 15 publications

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“…For example, the magnitude of the coefficient on retained earnings in Canada is lower than that for firms in the United States. The results confirm the argument by Dhaliwal et al (2003) and Hanlon et al (2003) that the price-level valuation model based on Ohlson (1995) is probably not well-specified empirically.…”

Section: Introductionsupporting

confidence: 86%

“…Harris and Kemsley (1999) document different pricing on equity components, and they attribute the result to tax capitalization effect. On the other hand, Hanlon, Myers, and Shevlin (2003) and Dhaliwal, Erickson, Frank, and Banyi (2003) disagree and argue that the empirical models are mis-specified. Therefore, this paper replicates the approach taken by Harris and Kemsley (1999) and an alternative approach taken by Hanlon et al (2003).…”

Section: Introductionmentioning

confidence: 99%

“…On the other hand, Harris and Kemsley (1999), Hanlon et al (2003), and Dhaliwal et al (2003) all study the changes after the Tax Reform Act of 1986 (TRA 86). All of them find a less negative coefficient on retained earnings during the postreform period.…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Dividend Tax on Earnings and Contributed Capital in Firm Valuation

Hsieh¹,

Chou²

2015

IJAT

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Earlier research applies theoretical valuation models in studying tax capitalization, an effect that results in different pricing on contributed capital, retained earnings, and net income due to dividend taxes. There are also debates regarding whether it is appropriate to apply the price-level model in empirical research, because the coefficients may be sensitive to model specifications. To further explore this issue, this paper investigates tax capitalization in different tax regimes, where individual dividend tax rates vary across countries and over time. First, we compare U.S. with Canada, which are similar in environment but different in the level of double taxation on dividends. We find differential pricing on retained earnings and contributed capital, but the magnitudes are inconsistent with the theory. Second, we examine a statutory tax rate change in Taiwan in 1998 when an "integrated" income tax system was implemented to alleviate double taxation on dividends. We find that changes in the pricing on retained earnings coincide with changes on dividend tax, but the results on the relationship between contributed capital and retained earnings are mixed. The results are more consistent with the argument that caution should be exerted when applying the model in studying tax capitalization effect.

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Section: Introductionsupporting

confidence: 86%

Section: Introductionmentioning

confidence: 99%

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The Effect of Dividend Tax on Earnings and Contributed Capital in Firm Valuation

Hsieh¹,

Chou²

2015

IJAT

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“…For example, in studies of UK markets, while Ang et al (1991) and Chui et al (1992) conclude that investor level taxes are reflected in gross yields, Morgan and Thomas (1998) dispute the validity of a tax-based explanation, suggesting dividend signalling effects and a delayed related price reaction as alternatives. The lack of consensus internationally on the impact of investor level taxes is evidenced in Harris and Kemsley (1999), Harris et al (2001), Collins and Kemsley (2000), Dhaliwal et al (2003) and Hanlon et al (2003).…”

Section: Introductionmentioning

confidence: 99%

Taxation influences upon the market in venture capital trust stocks: theory and practice

Holland

Jackson

2011

Accounting and Business Research

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-Individuals investing in a Venture Capital Trust IPO listed on the London Stock Exchange receive a number of conditional tax incentives; the time related nature of the associated conditions can create a 'lock-in effect'. By deriving and testing a model of the value of these incentives we examine how they influence investors' pricing and trading decisions. This paper contributes to the ongoing tax capitalisation debate in three ways: first, by calculating the magnitude of the lock-in effect without reference to underlying shareholder records; second, by adopting a time series approach in view of the time varying magnitude of the potential lock-in effect, and thereby avoiding control issues involved in cross-sectional analysis of the effects of taxation on pricing; and third, by focusing on changes in the bid-ask spread rather than, for example, mid price, so reducing the impact of changes in the market value of the instruments under consideration on the analysis. Our results have direct policy implications in suggesting a conflict between the existence of time related conditional tax incentives and the requirement for VCTs to be listed on the London Stock Exchange explicitly in order to promote liquidity in a historically illiquid sector of the market.

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“…Many of these studies have provided evidence supporting the existence of tax capitalization using panel studies (Harris and Kemsley, 1999, Harris, Hubbard, and Kemsley, 1999, and Collins and Kemsley, 2000, event studies (Lang andShackelford, 2000, andAyers, Cloyd, andRobinson, 2000), and time series (Williams, 2001a), while other studies have questioned the robustness of some of these findings (Dhaliwal, Erickson, Myers, andBanyi, 2001, andHanlon, Myers, andShevlin, 2001). Apart from whether tax capitalization occurs, or its magnitude, the question of whether common stocks bear implicit taxes is a fundamentally different one.…”

Section: Introductionmentioning

confidence: 99%

Evidence of Implicit Taxes on Equity Using Data from Futures Markets to Control for Risk

Aboody

Williams²

2001

SSRN Journal

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Are shareholder dividend taxes on corporate retained earnings impounded in equity prices? Additional evidence and analysis

Cited by 31 publications

References 15 publications

The Effect of Dividend Tax on Earnings and Contributed Capital in Firm Valuation

The Effect of Dividend Tax on Earnings and Contributed Capital in Firm Valuation

Taxation influences upon the market in venture capital trust stocks: theory and practice

Evidence of Implicit Taxes on Equity Using Data from Futures Markets to Control for Risk

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