Crossborder dividend taxation and the preferences of taxable and nontaxable investors: Evidence from Canada |
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| Institution: | 1. Department of Electrical and Computer Engineering, New York University, Brooklyn, NY, 11201, United States;2. IBM T. J. Watson Research Center, Yorktown Heights, NY, 10598, NY, United States;1. Université du Québec en Outaouais, Campus Saint-Jérôme, 5, rue Saint-Joseph, Saint-Jérôme, Québec J7Z 0B7, Canada;2. Université Laval, Department of Finance, Insurance and Real Estate, Faculté des sciences de l’administration, Pavillon Palasis-Prince, 2325 rue de la Terrasse, Québec, Québec G1V 0A6, Canada;3. Université du Québec en Outaouais, Gatineau, Pavillon Lucien-Brault, 101 rue Saint-Jean-Bosco, Gatineau, Québec J8X 3X7, Canada;1. Fiscal Affairs Department, International Monetary Fund, United States;2. Department of Economics, University of Michigan, United States |
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| Abstract: | We consider how fund managers respond to the conflicting preferences of their investors. We focus on the conflict between the taxable and retirement accounts of international funds, which face different tradeoffs between dividends and capital gains. In principle, managers could resolve this conflict through dividend arbitrage, but a proprietary database of dividend-arbitrage transactions shows that in practice they cannot. Thus, managers must resolve it through their investment policies. We find robust evidence that managers with more retirement money favor the preferences of retirement investors and further evidence for this view in the difference between U.S. and Canadian funds’ portfolio weights. |
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