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AN INDIRECT TEST FOR DIVIDEND RELEVANCE
Author(s) -
Siddiqi Mazhar A.
Publication year - 1995
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1995.tb00213.x
Subject(s) - dividend , straddle , economics , relevance (law) , dividend policy , proxy (statistics) , equating , margin (machine learning) , dividend tax , financial economics , econometrics , tax reform , finance , state income tax , public economics , law , mathematics , computer science , statistics , political science , machine learning , gross income , reading (process)
This paper provides an indirect test of dividend relevance conducted in periods that straddle the tax law changes effected by the Tax Reform Act of 1986. Using the abnormal ex‐dividend day return to proxy for the tax penalty of dividends, I find a negative relation between changes in this tax penalty and changes in dividends paid. This result is consistent with corporations' equating, at the margin, the costs of dividend payout to its benefits. Hence, this is indirect evidence of dividend relevance.