Shepard International, Inc.
30 S. Wacker Drive, #1418
Chicago, IL 60606
NBER Working Papers and Publications
|December 1992||A Tax-Based Test of the Dividend Signaling Hypothesis|
with B. Douglas Bernheim: w4244
We propose and implement a new test of the dividend signaling hypothesis that is designed to discriminate between dividend signaling and other theories that would account for the apparent existence of a dividend preference. Our test refines the use of data on stock price responses to dividend announcements. In particular, we study the effect of dividend taxation on the bang-for-the-buck, which we define as the share price response per dollar of dividends. Most dividend signaling models imply that an increase in dividend taxation should increase the bang-for-the-buck. In contrast, other dividend preference theories imply that an increase in dividend taxation should decrease the bang-for-the-buck. Since there have recently been considerable variation in the tax treatment of dividends, we are...
Published: American Economic Review 85(3), june 1995, 532-551. citation courtesy of