Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes
This paper jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors and officers, but not other individual investors, rebalanced their portfolios to maximize after-tax returns in light of the new tax rules. We also find that firms adjusted their distribution policy (specifically, dividends versus share repurchases) in a manner consistent with the altered tax incentives for individual investors. To our knowledge, this is the first paper to employ simultaneous equations to estimate both investor and managerial responses to the 2003 rate reductions. We find that estimating a system of equations leads to different inferences.
The authors have benefited greatly from comments from Dan Dhaliwal and two anonymous referees, discussions with Jeff Brown, Raj Chetty, Emmanuel Saez, and Scott Weisbenner and research assistance from Kevin Markle. We are responsible for all remaining errors. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Firms with large individual ownership boosted the dividend portion of their total payouts, beginning a few months after enactment of the...
Blouin, Jennifer L., Jana S. Raedy, and Douglas A. Shackelford, “Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes,” The Accounting Review 86:3, May 2011, 887-914 .