Does a change in dividend tax rates in the U.S. affect equity prices of non-U.S. stocks?

Research output: Contribution to journalArticle

Abstract

I investigate the link between dividend taxes and stock prices in a global setting. Based on findings from an open-economy after-tax capital asset pricing model, I predict that, when the U.S. cut its dividend tax rate in 2003, stock prices will increase for high-dividend yield foreign firms that are eligible for a U.S. income tax treaty. I examine returns for firms headquartered in treaty countries and find results consistent with this prediction. In further tests, I find that the same relation does not hold for firms in nontreaty countries. My paper is the first to provide direct evidence about whether and how dividend taxes affect equity prices across an integrated global economy.

Original languageEnglish (US)
JournalReview of Accounting Studies
DOIs
StatePublished - Jan 1 2019

Fingerprint

Dividend taxes
Tax rate
Equity prices
Stock prices
Treaties
Tax treaties
Global economy
Prediction
Integrated
Capital asset pricing model
Dividend yield
Headquarters
Foreign firms
Tax
Income tax
Open economy

Keywords

  • Expected stock returns
  • Shareholder dividend taxes
  • Stock prices
  • Tax capitalization

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

Cite this

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title = "Does a change in dividend tax rates in the U.S. affect equity prices of non-U.S. stocks?",
abstract = "I investigate the link between dividend taxes and stock prices in a global setting. Based on findings from an open-economy after-tax capital asset pricing model, I predict that, when the U.S. cut its dividend tax rate in 2003, stock prices will increase for high-dividend yield foreign firms that are eligible for a U.S. income tax treaty. I examine returns for firms headquartered in treaty countries and find results consistent with this prediction. In further tests, I find that the same relation does not hold for firms in nontreaty countries. My paper is the first to provide direct evidence about whether and how dividend taxes affect equity prices across an integrated global economy.",
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AB - I investigate the link between dividend taxes and stock prices in a global setting. Based on findings from an open-economy after-tax capital asset pricing model, I predict that, when the U.S. cut its dividend tax rate in 2003, stock prices will increase for high-dividend yield foreign firms that are eligible for a U.S. income tax treaty. I examine returns for firms headquartered in treaty countries and find results consistent with this prediction. In further tests, I find that the same relation does not hold for firms in nontreaty countries. My paper is the first to provide direct evidence about whether and how dividend taxes affect equity prices across an integrated global economy.

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