Is the Average Dividend Tax Rate of Investors Capitalized into Expected Returns?

2013 ◽  
Author(s):  
David Graham Kenchington
Keyword(s):  
Expected Returns ◽  
Tax Rate ◽  
Dividend Tax

The Effect of Tax-Exempt Investors and Risk on Stock Ownership and Expected Returns

2010 ◽  
Vol 85 (3) ◽  
pp. 849-875 ◽  
Author(s):  
David A. Guenther ◽  
Richard Sansing
Keyword(s):  
Stock Price ◽  
Empirical Studies ◽  
Weighted Average ◽  
Expected Returns ◽  
Expected Return ◽  
Tax Rate ◽  
Tax Exempt ◽  
Shareholder Taxes ◽  
Empirical Tests ◽  
Dividend Tax

ABSTRACT: We investigate how shareholder taxes and risk preferences affect both a stock’s expected return, which reflects the capitalization of the dividend tax penalty into stock price, and the fraction of a firm’s stock held by tax-exempt investors. Our model demonstrates that the dividend tax capitalization effect reflects the weighted average tax rate of all investors, where the weighting depends on investors’ risk tolerances. This weighted average tax rate is not affected by the fraction of stock held by tax-exempt investors; however, tax-exempt investor ownership can be correlated with the weighted average tax rate if differences in tax-exempt investor ownership for different stocks reflect differences in investor risk tolerances for those stocks. Our empirical tests are consistent with the model’s predictions, and provide an equilibrium framework for interpreting prior empirical studies in accounting.

scholarly journals How leverage can improve performance

2020 ◽  
Vol 83 ◽  
pp. 01031
Author(s):  
Miroslav Kmeťko ◽  
Eduard Hyránek
Keyword(s):  
Risk Premium ◽  
Expected Returns ◽  
Tax Rates ◽  
Expected Return ◽  
Tax Rate ◽  
Equity Ratio ◽  
Risk Free Rate ◽  
The Cost ◽  
Managed Portfolios ◽  
The Impact

One of the best-known Capital Asset Pricing Model (CAP/M) provides us with a methodology for measuring the relationship between the risk premium and the impact of leverage on expected returns. However, this model is not used only to value the cost of capital but also to evaluate the performance of managed portfolios. We will test how the expected return changes in percent by changing the debt-equity ratio and the tax rate based on following assumptions: market return 7%, risk-free rate of return 1% and beta 1.2. These assumptions will be constant and we will change the debt-equity ratio and tax rate. Based on these results, it is clear that the change in profitability varies, in relation to the change of the DE ratio by one tenth. As for changes I n tax rates, changes in expected profitability are not entirely in direct proportion to these changes.

Foreign Portfolio Investment and Shareholder Dividend Taxes

2015 ◽  
Vol 91 (3) ◽  
pp. 717-740 ◽  
Author(s):  
Dan Amiram ◽  
Mary Margaret Frank
Keyword(s):  
Empirical Support ◽  
Weighted Average ◽  
Risky Assets ◽  
Foreign Portfolio Investment ◽  
Tax Rate ◽  
Portfolio Holdings ◽  
International Setting ◽  
National Tax ◽  
Dividend Tax ◽  
Dividend Taxes

ABSTRACT We investigate the effects of dividend taxes on foreign equity portfolio holdings. Based on the extension of an equilibrium model with risky assets to an international setting, we predict that a change in the tax rate on dividends of a country's domestic investors is positively related to changes in foreign investors' portfolio holdings in that country. The evidence from two research settings, which exploit changes in the national tax policies of different countries, supports this prediction. More generally, the model predicts that a foreign investor's equilibrium portfolio holdings in a country are negatively related to the dividend tax rate that she directly pays on assets in that country and positively related to the weighted-average dividend tax rate of worldwide investors in that country. Results from analyses using panel data provide empirical support for these predictions.

The Effect of Taxes on Conventional Preferred Stock: Evidence from the 2003 JGTRRA Dividend Tax Reduction

2012 ◽  
Vol 34 (1) ◽  
pp. 87-111 ◽  
Author(s):  
Amy Dunbar ◽  
Stanley Veliotis
Keyword(s):  
Data Availability ◽  
Matched Pair ◽  
Experimental Setting ◽  
Tax Rate ◽  
Preferred Stock ◽  
Tax Relief ◽  
Tax Reduction ◽  
Tax Returns ◽  
Quasi Experimental ◽  
Dividend Tax

ABSTRACT This study examines the extent to which investor-level taxes affect the pricing and pre-tax returns of securities. Specifically, we investigate whether the pre-tax yield on outstanding conventional preferred stock (CPS) decreased after the 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) reduced the individual's tax rate on dividends. Our research design for detecting tax effects is strong for two reasons: (1) JGTRRA provides a quasi-experimental setting that permits a pre/post design, and (2) we use trust preferred stock (TPS) issued by the same firm as the tax-disfavored benchmark asset, which permits a matched-pair design that controls for risk. Additional tests including CPS issues without TPS counterparts confirm the effect of JGTRRA on CPS issues. The results indicate that investors reacted to the new tax-favored status of CPS by bidding up its price, which lowered its yield. Data Availability:  All data are available from public sources identified in the paper.

The Initial Impact of the 2003 Reduction in the Dividend Tax Rate

2003 ◽  
Author(s):  
Jennifer L. Blouin ◽  
Jana Smith Raedy ◽  
Douglas A. Shackelford
Keyword(s):  
Tax Rate ◽  
Dividend Tax

scholarly journals An Improved Model of Dividend Tax Based on Continuous Function

2014 ◽  
Vol 2 (6) ◽  
pp. 568-576
Author(s):  
Chunning Yan ◽  
Hang Zhang ◽  
Qianqian Chen ◽  
Yangxin Huang
Keyword(s):  
Distribution Function ◽  
Continuous Function ◽  
Normal Distribution ◽  
Continuous Functions ◽  
Normal Distribution Function ◽  
Short Term ◽  
Tax Rate ◽  
Improved Model ◽  
Dividend Tax

AbstractBy comparing several kinds of continuous functions, a normal distribution function-based model is proposed to improve the existing Levy policy of dividend tax in this paper. The improved model is adopted to stimulate the long-term investment and contain the short-term speculation. Further, this improved model paves an avenue to overcome the deficiency on the double policy of dividend tax rate by holding stock period with one day difference and also adjust the tax revenues by controlling the parameters of the distribution function. The findings from this study suggest that the improved model with normal distribution function may provide more reasonable results based on the data from the stock market and, finally, the proper decision is discussed.

The composite dividend tax rate

2018 ◽  
Vol 48 (7) ◽  
pp. 727-758 ◽  
Author(s):  
Deen Kemsley ◽  
Padmakumar Sivadasan ◽  
Venkat Subramaniam
Keyword(s):  
Tax Rate ◽  
Dividend Tax
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