Premium
The Market Valuation of Cash Dividends and the Tax Differential Theory of Dividend Policy: A Case Revisited
Author(s) -
Sterk William E.,
Vandenberg Pieter A.
Publication year - 1990
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1990.tb00806.x
Subject(s) - dividend policy , economics , dividend , value added tax , double taxation , valuation (finance) , tax reform , ad valorem tax , tax policy , tax credit , monetary economics , capital gains tax , financial economics , dividend tax , indirect tax , state income tax , public economics , finance , gross income
One of the most controversial areas in finance concerns the relevance or irrelevance of dividend policy. Survey results reported by researchers indicate that corporate chief financial officers believe that dividend policy does affect stock prices. One factor that could cause dividend policy to matter is possible tax effects. However, although many maintain that tax treatment would favor low payout, Miller and Scholes argue that tax policy is irrelevant. The latest change in the tax code, which removed the lower capital gains tax rate, provides a unique opportunity to examine the relevance of tax policy alone. This study revisits the Citizens Utilities case, which was used by Long and Poterba. We conclude that the market for Citizens Utilities shares indicates that tax policy does influence value.