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Dividend Imputation and Shareholder Wealth: The Case of New Zealand
Author(s) -
Prevost Andrew,
Rao Ramesh P.,
Wagster John D.
Publication year - 2002
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00462
Subject(s) - imputation (statistics) , dividend , shareholder , debt , incentive , economics , debt ratio , monetary economics , business , capital structure , financial system , financial economics , finance , corporate governance , missing data , microeconomics , machine learning , computer science
On April 1, 1988, New Zealand stopped the double taxation of dividends by implementing a full dividend imputation program. Because many believed that the tax advantage of debt had led to more highly leveraged firms subject to greater financial risk than was socially optimal, it was hoped the removal of incentives to finance with debt would result in a more efficient allocation of capital. The empirical results suggest that the shareholder wealth gain from dividend imputation was more than offset in firms with large debt levels. Moreover, an examination of debt ratios indicates debt levels declined in the post–imputation period.