Taxes and dividend policy under alternative tax regimes |
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| Authors: | Kerry Pattenden Garry Twite |
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| Institution: | 1. New York University, New York, NY, USA;2. Temple University, Philadelphia, PA, USA;3. Securities and Exchange Commission, Washington, DC, USA;1. UQ Business School, University of Queensland, Australia;2. Schulich School of Business, York University, Canada;3. Sawyer Business School, Suffolk University, USA;4. UNSW Business School, University of New South Wales, Australia;1. School of Economics and Business, P.O. Box 5003, Norwegian University of Life Sciences, NO-1432 Aas, Norway;2. WHU — Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany;3. Cornell Tech; Cornell University NY, USA;1. Florida Atlantic University, College of Business, Boca Raton, FL 33431, United States;2. University of Missouri, Trulaske College of Business, Columbia, MO 65201, United States;3. Nanyang Technological University, Nanyang Business School, Singapore 639798, Singapore |
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| Abstract: | This paper examines changes in corporate dividend policy around the introduction of a dividend imputation tax system. This represented a significant change to the Australian tax framework and allows us to test the effect of differential taxation on corporate dividend policy. Consistent with the tax preference for the distribution of dividends, we find dividend initiations, all dividend payout measures and dividend reinvestment plans increased with the introduction of dividend imputation. Similarly we find that gross dividend payouts are more volatile under dividend imputation. Finally, we find that the increase in dividend payout and initiations differs across firms. In particular, we find that the higher the level of available franking tax credits the higher the firm's gross dividend payout and the more likely the firm is to initiate a dividend. |
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