TY  - JOUR
AU  - Auerbach,Alan J.
AU  - Hassett,Kevin A.
TI  - The 2003 Dividend Tax Cuts and the Value of the Firm: An Event Study
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11449
PY  - 2005
Y2  - July 2005
UR  - http://www.nber.org/papers/w11449
L1  - http://www.nber.org/papers/w11449.pdf
N1  - Author contact info:
Alan J. Auerbach
Department of Economics
530 Evans Hall, #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0711
Fax: 510/643-0413
E-Mail: auerbach@econ.berkeley.edu

Kevin Hassett
American Enterprise Institute
1150 Seventeenth Street, N.W.
Washington, DC 20036
E-Mail: khassett@aei.org
AB  - The "Jobs and Growth Tax Relief Act of 2003" (JGTRA03) contained a number of significant tax provisions, but the most noteworthy may have been the reduction in dividend tax rates. The political debate over the dividend tax reductions of 2003 took a number of surprising twists and turns. Accordingly, it is likely that the views of market participants concerning the probability of significant dividend tax reduction fluctuated significantly during 2003. In this paper, we use this fact to estimate the effects of dividend tax policy on firm value. We find that firms with higher dividend yields benefited more than other dividend paying firms, a result that, in itself, is consistent with both new and traditional views of dividend taxation. But further evidence points toward the new view and away from the traditional view. We also find that non-dividend-paying firms experienced larger abnormal returns than other firms as the result of the dividend tax cut, and that a similar bonus accrued to firms likely to issue new shares, two results that may appear surprising at first but are consistent with the theory developed in the paper.
ER  -