Changing dividend policies caused by the Tax Reform Act of 1986: An empirical analysis

In this paper the authors analyze the change in dividend yield (and capital gains yield) patterns of the group of 1108 firms listed on the monthly CRSP tapes from 1984 to 1988. It was anticipated that the Tax Reform Act of 1986 would lead to a pattern of increasing dividend yields and decreasing capital gains yields in 1987 and 1988 due to the elimination of the capital gains tax rate by 1988 and the overall reduction in personal tax rates. The results were consistent across all dividend groups as expected.