The Effect Of South African Dividend And Capital Gains Taxes On Share Prices And Investor Expected Returns

2014 ◽  
Vol 30 (3) ◽  
pp. 895 ◽  
Author(s):  
Francois Toerien ◽  
Matthew Marcus
Keyword(s):  
South African ◽  
Stock Prices ◽  
Firm Value ◽  
Capital Gains ◽  
Capital Gains Tax ◽  
Expected Return ◽  
Share Prices ◽  
Valuation Model ◽  
Capital Gains Taxes ◽  
Residual Income Valuation

<p>We examine the effect of South African taxes, specifically the secondary tax on companies (STC) and the dividends tax (DT) that replaced it, as well as capital gains tax (CGT), on investor measures of expected return and firm value. The discussion, findings, and models presented in this study are entirely original in the field of South African corporate finance research. We model the relationship between STC, CGT, and expected return and use this relationship to formulate an hypothesis of the expected behaviour of ex-ante measures of implied cost of capital for a sample of listed South African companies. We calculate these measures by formulating a unique South African version of the residual income valuation model (RIVM) and then regress derived measures of the implied equity premium on historical measures of dividend yield, ultimately concluding that investors appear to recognise the net tax benefit of dividends and capitalise this benefit into stock prices. Finally, we examine the expected position of each of these areas in light of the proposed shareholder dividend tax regime.</p>

Capital Gains Taxes and Stock Return Volatility

2013 ◽  
Vol 35 (2) ◽  
pp. 1-31 ◽  
Author(s):  
Zhonglan Dai ◽  
Douglas A. Shackelford ◽  
Harold H. Zhang
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Cash Flows ◽  
Capital Gains ◽  
Return Volatility ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Stock Return Volatility ◽  
Capital Gains Taxes ◽  
The Impact

ABSTRACT This paper presents an empirical investigation of the impact of capital gains taxes on stock return volatility. We predict that the more stock returns are subject to capital gains taxation, the greater the increase in return volatility following a capital gains tax rate cut due to reduced risk-sharing in firms' cash flows between shareholders and the government. Consistent with this prediction, we find larger increases in the return volatility for more appreciated stocks than for less appreciated stocks and for non-dividend-paying stocks than for dividend-paying stocks after both 1978 and 1997 capital gains tax rate reductions. The findings imply that capital gains taxes convey a heretofore overlooked benefit of lower stock return volatility.

Capital Gains and Dividend Taxes in Firm Valuation: Evidence of Triple Taxation

2000 ◽  
Vol 75 (4) ◽  
pp. 405-427 ◽  
Author(s):  
Julie H. Collins ◽  
Deen Kemsley
Keyword(s):  
Empirical Analysis ◽  
Firm Valuation ◽  
Capital Gains ◽  
Residual Income ◽  
Equity Valuation ◽  
Valuation Model ◽  
Capital Gains Taxes ◽  
Retained Earnings ◽  
Dividend Taxes

Although firms account for entity-level taxes, they do not account for shareholder-level capital gains and dividend taxes. To account for these proprietary-level taxes, we add them to a residual-income equity valuation model. Empirical analysis supports the model's predictions. First, both capital gains and dividend taxes reduce investors' implicit valuation of the reinvested portion of earnings. Second, dividend taxes reduce the valuation of the portion of earnings distributed as dividends, but capital gains taxes do not. Third, dividend taxes reduce the valuation of retained earnings equity, but again, capital gains taxes do not. These findings suggest that investors implicitly extend entity-level accounting to the proprietary level when they value the firm. The findings also suggest that when fully accounting for the effects of implicit dividend taxes, reinvested earnings appear to be subject to three levels of taxation—corporate, dividend, and capital gains taxes. Paying earnings out as dividends eliminates the capital gains layer of tax and may provide a net wealth benefit for shareholders, rather than a tax penalty as commonly assumed.

The Effects of the Capital Gains Tax Rate and Expectations of Subsequent Firm Performance on CEO Stock Ownership

2009 ◽  
Vol 31 (2) ◽  
pp. 1-43 ◽  
Author(s):  
Robert F. Gary
Keyword(s):  
Stock Prices ◽  
Fixed Effects ◽  
Abnormal Returns ◽  
Stock Option ◽  
Capital Gains ◽  
Stock Ownership ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Equity Ownership ◽  
The Relationship

ABSTRACT: This study examines the relationship between the Taxpayer Relief Act of 1997 (TRA97) capital gains tax rate reduction and the level of chief executive officer (CEO) equity ownership. In addition, the relationship between the level of CEO equity ownership and CEO expectations of future stock prices is investigated. Corporate scandals in recent years have increased institutional investors’ advocacy of CEO stock ownership, which investors believe will align CEO interests with those of stockholders. Prior research on the role of taxes in equity-based compensation has focused on stock option exercises, but has not studied how a tax rate change affects CEO ownership. The findings from time-series cross-sectional fixed-effects regression models of ownership levels indicate that the level of CEO ownership is inversely related to the capital gains tax rate, and that this effect varies with the abnormal returns of the firm during the following year.

A Comparative Analysis of Accounting-Based Valuation Models

2016 ◽  
Vol 32 (4) ◽  
pp. 561-575 ◽  
Author(s):  
Kung-Cheng Ho ◽  
Shih-Cheng Lee ◽  
Chien-Ting Lin ◽  
Min-Teh Yu
Keyword(s):  
Stock Prices ◽  
The Other ◽  
Residual Income ◽  
Switching Regression ◽  
Book Value ◽  
Earnings Growth ◽  
Valuation Model ◽  
Pricing Errors ◽  
Residual Income Valuation ◽  
Average Probability

We empirically compare the reliability of the dividend (DIV) model, the residual income valuation (CT, GLS) model, and the abnormal earnings growth (OJ) model. We find that valuation estimates from the OJ model are generally more reliable than those from the other three models, because the residual income valuation model anchored by book value gets off to a poor start when compared with the OJ model led by capitalized next-year earnings. We adopt a 34-year sample covering from 1985 to 2013 to compare the reliability of valuation estimates via their means of absolute pricing errors ( MAPE) and corresponding t statistics. We further use the switching regression of Barrios and Blanco to show that the average probability of OJ valuation estimates is greater in explaining stock prices than the DIV, CT, and GLS models. In addition, our finding that the OJ model yields more reliable estimates is robust to analysts-based and model-based earnings measures.

South African Capital Gains Tax and Trusts: A Brief Overview

2002 ◽  
Vol 8 (3) ◽  
pp. 17-19
Author(s):  
P. E.W. Roper ◽  
J. Ware
Keyword(s):  
South African ◽  
Capital Gains ◽  
Capital Gains Tax

scholarly journals EFFECT OF DIVIDEND POLICY ON STOCK PRICES

2015 ◽  
Vol 3 (1) ◽  
Author(s):  
Adnan ALİ ◽  
Farzand Ali Jan ◽  
Ilyas Sharif
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Dividend Policy ◽  
Random Effect ◽  
Capital Gains ◽  
Upward Movement ◽  
Significant Relation ◽  
Market Prices ◽  
Return On Equity ◽  
Share Prices

This investigates the effect of dividend policy on stock prices. Objective of the study is to see if there exists any relationship between dividend policy and stock prices. We analyzed 45 non-financial companies listed on KSE-100 index that have earned profits and paid dividend for a period of twelve year w.e.f. 2001. Technique adopted for sampling adopted is convenience sampling. As the nature of data is panel therefore, pooled regression, fixed and random effect tests are run. Random effect results are focused after applying Hausman’s test.Regression Results witness that Dividend per Share andRetention Ratio havean insignificant relationship with Share Market Prices.Dividend Payout Ratio has a significant positive relationship with Share Prices as supported by the Bird in hand theory suggested that owners give preference to a dollar of estimated dividends over a likely dollar of capital gains. Profit after tax, Earning per share and Return on Equity are the three control variables. Profit after Tax has insignificant relation to Stock Prices. Earnings per Share have positive significant relation to Stock Prices. There is negative significant relation between Return on Equity and Share Prices. It is recommended that firms in the sample should regularly pay dividend as it will cause an upward movement in the stock market prices. Whereas profit retention by firms will result in a decrease in the value of the stock market prices.

scholarly journals Dividend clientele, new insights, and new questions: the Brazilian case

2009 ◽  
Vol 8 (1) ◽  
Author(s):  
Jairo Laser Procianoy ◽  
Rodrigo S. Verdi
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Trading Volume ◽  
Market Price ◽  
Capital Gains ◽  
Capital Gains Tax ◽  
Abnormal Volume ◽  
Abnormal Trading Volume ◽  
Signaling Hypothesis ◽  
Dividend Tax

This paper analyzes the dividend clientele effect and the signaling hypothesis in the Brazilian stock market between 1996 and 2000. During this period, the dividend tax was zero and the capital gains tax varied between zero and 10%. Brazilian firms face two information regimes, which allow us to test the signaling hypothesis. From a sample of 394 observations studied, 39% show a first ex-dividend day stock price higher than the price on the last cum-dividend day. The market price is higher for unanticipated dividends but, even with pre-announced dividends, stock prices are higher than the expected level, which is inconsistent with the clientele hypothesis. We also find evidence of a positive abnormal volume around the unanticipated dividend date, which is consistent with the signaling hypothesis, but no abnormal trading volume around pre-announced dividend dates. Our findings are inconsistent with the clientele hypothesis but provide support for the signaling hypothesis.

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