Incremental Financing Decisions and Time-Series Variation in Personal Taxes on Equity Income

2007 ◽  
Vol 29 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Dan S. Dhaliwal ◽  
Merle M. Erickson ◽  
Linda K. Krull
Keyword(s):  
Time Series ◽  
Institutional Ownership ◽  
Capital Gains ◽  
Tax Rates ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Personal Taxes ◽  
Tax Exempt ◽  
Tax Benefits ◽  
Dividend Tax

This study investigates whether changes in personal tax rates on dividends and capital gains affect firms' incremental financing decisions. The evidence in this study suggests that following the 1997 and 2003 Tax Acts, which decreased tax rates on equity income, firms are less likely to issue debt relative to equity, consistent with the hypothesis that decreases in tax rates on equity income decrease the tax benefits of debt. Further, the magnitude of this effect varies predictably with dividend yield, a proxy for the proportion of equity income taxed at capital gain tax rates versus dividend tax rates. The magnitude of this effect is also decreasing in institutional ownership, a proxy for the probability that the marginal investor is tax exempt. This paper contributes to the literature that examines the effect of taxes on corporate financing decisions.

scholarly journals Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

2010 ◽  
Vol 2 (1) ◽  
pp. 131-168 ◽  
Author(s):  
François Gourio ◽  
Jianjun Miao
Keyword(s):  
Capital Accumulation ◽  
Firm Heterogeneity ◽  
Percent Level ◽  
Capital Gains ◽  
Tax Rates ◽  
Aggregate Productivity ◽  
Capital Gains Tax ◽  
Productivity Shocks ◽  
Long Run ◽  
Dividend Tax

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent. (JEL D21, E22, E62, G32, G35, H25, H32)

Capital Gains Tax Realizations and Tax Rates: New Evidence from Time Series

2000 ◽  
Vol 53 (3, Part 2) ◽  
pp. 663-682 ◽  
Author(s):  
Matthew Eichner ◽  
Todd Sinai
Keyword(s):  
Time Series ◽  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
New Evidence

scholarly journals The Effect of Shareholder Taxes on Corporate Payout Choice

2007 ◽  
Vol 42 (4) ◽  
pp. 991-1019 ◽  
Author(s):  
William J. Moser
Keyword(s):  
Institutional Ownership ◽  
Capital Gain ◽  
Share Repurchases ◽  
Tax Rates ◽  
Share Ownership ◽  
Shareholder Taxes ◽  
The Difference ◽  
Dividend Tax

abstractThis study investigates whether the difference in individual shareholder tax rates between dividend income and capital gain (the dividend tax penalty) affects a firm's choice between distributing funds to shareholders through dividends or share repurchases. The results of this study suggest that, in periods in which the dividend tax penalty increases, firms are more likely to distribute funds to shareholders through share repurchases as opposed to dividends. The results also indicate that the relation between the dividend tax penalty and corporate payout choice is affected by the types of shareholders who own stock in the firm. As tax-disfavored institutional ownership increases and the dividend tax penalty increases, firms are more likely to repurchase shares as opposed to distributing dividends. In contrast, as tax-favored institutional ownership increases and the dividend tax penalty increases, firms are less likely to repurchase shares as opposed to distributing dividends. As senior managerial share ownership increases and the dividend tax penalty increases, firms are more likely to make distributions to shareholders in the form of share repurchases.

The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

2014 ◽  
Vol 6 (1) ◽  
pp. 114-136 ◽  
Author(s):  
Laura Kawano
Keyword(s):  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Consumer Finances ◽  
Household Portfolio ◽  
Using Data ◽  
The Relationship ◽  
Dividend Tax

This paper provides evidence that dividend and capital gains tax rates importantly influence household portfolio choices. Using data from the Surveys of Consumer Finances around the 2003 dividend tax reductions, I estimate the relationship between taxes and household portfolio dividend yields. I find that a one percentage point decrease in the dividend tax rate relative to the long-term capital gains tax rate causes household portfolio dividend yields to increase by 0.04 percentage points. The results suggest that high income households significantly increased their portfolio dividend yields in response to the 2003 dividend tax rate reductions. (JEL D14, G11, G35, H24)

Taxes and Valuation: Evidence from Dividend Change Announcements

2007 ◽  
Vol 29 (2) ◽  
pp. 1-23 ◽  
Author(s):  
Oliver Zhen Li
Keyword(s):  
Institutional Ownership ◽  
Agency Cost ◽  
Capital Gains ◽  
Equity Valuation ◽  
Individual Investors ◽  
Institutional Trading ◽  
Tax System ◽  
Tax Effect ◽  
Dividend Tax ◽  
The U.S

Under the U.S. tax system, dividends are historically taxed at a higher rate than capital gains and thus incur a tax-related penalty. I provide evidence that the dividend tax penalty partially offsets the positive signaling and agency cost effects of dividends for fully taxable individual investors. The level of institutional ownership and the frequency of institutional trading, which proxy for the likelihood that the marginal investor is not a fully taxable individual, mitigate the negative dividend tax effect. My results support the notion that taxes impact equity valuation. I contribute to the literature by isolating dividends' negative tax effect from their positive signaling and agency cost effects.

scholarly journals Testing the pecking order theory of capital structure: the case of Islamic financing modes

2020 ◽  
Vol 6 (1) ◽  
Author(s):  
Moncef Guizani
Keyword(s):  
Capital Structure ◽  
Random Effect ◽  
Order Theory ◽  
Equity Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Executive Managers ◽  
The Capital Structure

AbstractThe purpose of this paper is to examine whether or not the basic premises according to the pecking order theory provide an explanation for the capital structure mix of firms operating under Islamic principles. Pooled OLS and random effect regressions were performed to test the pecking order theory applying data from a sample of 66 Islamic firms listed on Kingdom of Saudi Arabia stock market over the period 2006–2016. The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as the last alternative to finance deficit, Islamic firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instrument and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the pecking order theory attempted by Saudi Islamic firms. This research highlights the capital structure choice of firms operating under Islamic principles. It explores the implication of the relevant Islamic principles on corporate financing preferences. It can serve firm executive managers in their financing decisions to add value to the companies.

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