Taxes and dividend clientele: Evidence from trading and ownership structure |
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| Institution: | 1. Department of Finance and Law, Central Michigan University, 332 Sloan Hall, Mount Pleasant, MI 48859, USA;2. Telfer School of Management, University of Ottawa, 55 Laurier Avenue East, Ottawa, K1N 6N5 ON, Canada;3. School of Business Administration, Penn State Harrisburg, 777 West Harrisburg Pike, Middletown, PA 17057, USA;1. Department of Economics, Dalhousie University, 6214 University Avenue, Halifax, NS B3H 4R2, Canada;2. Rowe School of Business, Dalhousie University, 6100 University Avenue, Halifax, NS B3H 4R2, Canada;1. University of Antwerp, Prinsstraat 13, 2000 Antwerp, Belgium;2. Antwerp Management School, Belgium |
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| Abstract: | Although dividend clientele have been studied over several decades, their existence remains controversial. We study the interaction of dividends and taxes by exploiting a unique dataset from Taiwan, where the capital gains tax is zero. We find strong evidence of a clientele effect. Agents subject to high rates of taxation on dividends tend to hold stocks with lower dividends and sell (buy) stocks that raise (lower) dividends. Agents in lower tax brackets behave in the opposite manner. After legalization of repurchases in 2000, firms with higher concentrations of more heavily taxed shareholders were more apt to begin repurchase programs. |
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