The Effect of Taxes on the Relative Valuation of Dividends and Capital Gains: Evidence from Dual-Class British Investment Trusts

We provide evidence that taxes affect equity valuation by studying British investment trusts having otherwise identical classes of cash- and stock-dividend-paying shares outstanding. We study 1969–1982, a period in which there were two dramatic changes in tax policy. We find that stock-dividend shares, which are convertible into cash-dividend shares, sell at premiums when the tax system favors capital gains and at discounts when the tax advantage of capital gains is reduced. After the 1975 elimination of the tax advantage to stock-dividend shares, we observe that investors convert virtually all stock-dividend shares into cash-dividend shares.     

Dividends,Taxes, and Signaling: Evidence from Germany

The higher taxation of dividends in the United States gave rise to theories that explain why companies pay dividends. Tax-based signaling models propose that the higher tax on dividends is a necessary condition to make them informative about companies' values. In Germany, where dividends are not tax-disadvantaged and in fact are taxed lower for most investor classes, these models predict that dividends are not informative. However, we find that the stock price reaction to dividend news in Germany is similar to that found in the United States. This suggests other reasons, beyond taxation, that make dividends informative.     

Valuation and Cost of Capital Formulae with Corporate and Personal Taxes: A Synthesis Using the Dempsey Discounted Dividends Model

This paper advances expressions for the firm's valuation and cost of capital as a function of leverage. The framework is arrived at by introducing leverage in Dempsey's (1996 and 1998) cost of capital framework and is applicable in the context of both classical and imputation tax systems. The framework reveals that both the historical stability of corporate leverage and the firm's choice of financing structure as revealed by the Pecking Order hypothesis are consistent with a tax-based explanation.     

Taxes,International Clienteles and the Value of ADR Dividends

An alternative approach to valuing dividends is developed and applied to American Depositary Receipts (ADRs) on Australian stocks. The values of ADR dividends are estimated from the period when, due to different ex‐dividend dates, the ADRs and their underlying stocks trade with differential dividend entitlements. Australian ADR dividends are valued at less than their face value and the dividends on the underlying stocks are valued at more than their face value. This suggests that ADR dividends are priced by a clientele of US investors placing little value on the imputation tax credits attached to the dividends and that a clientele of Australian resident investors, who obtain value from imputation tax credits, price the dividends on the underlying stock.     

A Note on Green Taxes and Double Dividends

Two highly influential articlesin the literature on green taxes and double dividends are Bovenbergand de Mooij (1994) and Goulder (1995). Goulder's primary concernis whether or not green tax reforms may increase welfare definedexclusive of environmental quality, while Bovenberg and de Mooijprimarily focus on the employment effects of such reforms. Unfortunately,Goulder misinterprets Bovenberg and de Mooij's results in takingthe sign of the uncompensated wage elasticity of labour supplyas being the decisive factor for whether or not welfare exclusiveof environmental quality rises under a green tax reform. Thiserror is pointed out and corrected in this note.     

The Pricing of Dividends in Equity Valuation

Abstract:   This study uses Ohlson's (1995 and 2001 ) accounting‐based equity valuation model to structure tests of four explanations for the anomalously positive pricing of dividends reported by Rees (1997) and Fama and French (1998) . First, we find that dividends are not simply a proxy for publicly available information that helps predict future abnormal earnings. Second, although dividends act as if they signal managers' private information about future profitability, they remain positively priced for firms with low incentives to signal. Third, dividends do not signal management's willingness to abstain from incurring agency costs. Fourth, however, controlling for one‐year‐ahead realized forecast errors yields a pricing of dividends that is very close to that of dividend displacement. After showing that dividends are not simply a proxy for analysts' misforecasting, we conclude that dividends appear to be positively priced because they are a proxy for the mispricing by investors of current earnings or book equity.     

The Aggregation and Valuation of Deferred Taxes

Review of Accounting Studies - This paper clarifies some of the conflicting arguments about the value relevance of deferred taxes. We address two questions. First, does accounting aggregation hold,...     

Dividends,Dilution, and Taxes: A Signalling Equilibrium

A signalling equilibrium with taxable dividends is identified. In this equilibrium, corporate insiders with more valuable private information optimally distribute larger dividends and receive higher prices for their stock whenever the demand for cash by both their firm and its current stockholders exceeds its internal supply of cash. In equilibrium, many firms distribute dividends and simultaneously issue new stock, while other firms pay no dividends. Because dividends reveal all private information not conveyed by corporate audits, current stockholders capture in equilibrium all economic rents net of dissipative signalling costs. Both the announcement effect and the relationship between dividends and cum-dividend market values are derived explicitly.     

Do Taxes Affect Corporate Financing Decisions?

This paper provides clear evidence of substantial tax effects on the choice between issuing debt or equity; most studies fail to find significant effects. The relationship between tax shields and debt policy is clarified. Other papers miss the fact that most tax shields have a negligible effect on the marginal tax rate for most firms. New predictions are strongly supported by an empirical analysis; the method is to study incremental financing decisions using discrete choice analysis. Previous researchers examined debt/equity ratios, but tests based on incremental decisions should have greater power.     

New Evidence on The January Effect Before Personal Income Taxes

We examine the returns of stocks in Cowles Industrial Index before and after the introduction of personal income taxes in 1917. This is distinct from earlier studies because we cross-sectionally analyze the relationship between the returns of the individual stocks and measures of tax-loss selling potential and size. We find that excess returns at the turn-of-the-year and for the month of January were not significant until after 1917. These results provide strong support for the tax-loss selling hypothesis as an explanation for the January seasonal in the returns of small firms.     

The Impact of Dividends, Debt and Investment on Valuation Models

The reliability of a basic earnings and equity model of value is tested using 8,287 cases drawn from UK industrial and commercial firms reporting during 1987–1995. A respecification of this model is used to investigate the value relevance of dividends, capital structure and capital expenditure. Both the dividend and capital expenditure signals appear to be significant and the impact of the former is surprisingly strong. There is no convincing evidence that equity value is affected by the level of debt. Further investigation of dividends confirms that they are less influential in large firms or in firms with high return on equity.     

应对分红险保单红利征收个人所得税吗?

分红险是指保险公司将其实际经营成果优于定价假设的盈余,按一定比例向保单持有人进行分配的人寿保险产品.作为一种创新型寿险产品,分红险业务在我国发展迅速,实际发放的保单红利金额也不断增加.但对于分红险保单红利是否应征收个人所得税,我国现行税法并没有做出明确规定.实践中,征纳双方、征税人之间对此也存在不同理解.笔者认为,对此不应简单地从字面概念判断,而应该从保单红利的本质出发,对保单红利与类似产品(如基金)税制进行比较,借鉴国外普遍做法,并结合我国寿险市场的实际情况,进行分析与判断.     

The Impact of Taxes on Discount Bond Valuation and Risk

If the effective tax rates on ordinary income and capital gains are identical, the assumption of independence or dependence between ordinary income and capital gains tax rates is shown to have no impact on discount bond valuation or risk. However, even if the effective tax rates are identical, the shape and the sensitivity of the bond valuation and risk functions with respect to taxes are not identical under the alternative assumptions. A mathematical and numerical analysis of the sensitivity of changes in the discount bond valuation and risk functions with respect to income tax rates is provided. Comparisons between the sensitivities of changes in the discount bond valuation and risk functions and taxes under conditions of dependence or independence between ordinary income and capital gains tax rates are made.     

Valuation Effects of New Securities Issuance by Bank Holding Companies: New Evidence

This study examines the announcement impact of bank holding company (BHC) security offerings on shareholder wealth. The results from this study regarding the effects of preferred stock, convertible debt, and straight debt issuances are largely consistent with previous studies. However, in contrast to previous studies pertaining to both BHCs and nonfinancial firms, this study does not find statistically significant negative announcement effects of common stock issues. This particular finding is consistent with the argument that an increase in the capital ratio may have a positive impact on common stock prices of BHCs under certain circumstances.     

Discussion of: “On the Aggregation and Valuation of Deferred Taxes”

Review of Accounting Studies -     

Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking

Using 113 staggered changes in corporate income tax rates across U.S. states, we provide evidence on how taxes affect corporate risk‐taking decisions. Higher taxes reduce expected profits more for risky projects than for safe ones, as the government shares in a firm's upside but not in its downside. Consistent with this prediction, we find that risk taking is sensitive to taxes, albeit asymmetrically: the average firm reduces risk in response to a tax increase (primarily by changing its operating cycle and reducing R&D risk) but does not respond to a tax cut. We trace the asymmetry back to constraints on risk taking imposed by creditors. Finally, tax loss‐offset rules moderate firms’ sensitivity to taxes by allowing firms to partly share downside risk with the government.