NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Did Firms Substitute Dividends for Share Repurchases after the 2003 Reductions in Shareholder Tax Rates?

Jennifer L. Blouin, Jana Smith Raedy, Douglas A. Shackelford

NBER Working Paper No. 13601
Issued in November 2007
NBER Program(s):   PE   CF

This paper tests whether firms altered their dividend and share repurchase policies in response to the 2003 reductions in shareholder tax rates. We predict that firms substituted dividends for repurchases, because the reduction in dividend tax rates exceeded the reduction in the capital gains tax rates. As expected, we find substitution and find that it is increasing in the percentage of the company owned by individual investors, the only shareholders affected by the legislation. These findings are consistent with boards of directors considering the tax preferences of individual stockholders (particularly officers and managers) when setting dividend and share repurchase policies.

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Document Object Identifier (DOI): 10.3386/w13601

Published: Article Citation: Jennifer L. Blouin, Jana S. Raedy, and Douglas A. Shackelford (2011) Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes. The Accounting Review: May 2011, Vol. 86, No. 3, pp. 887-914.

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