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- Title
How Did the 2003 Dividend Tax Cut Affect Stock Prices?
- Authors
Amromin, Gene; Harrison, Paul; Sharpe, Steven
- Abstract
We test the hypothesis that the 2003 dividend tax cut boosted US stock prices and thereby lowered the cost of equity capital. Using an event-study methodology, we attempt to identify an aggregate stock market effect by comparing the behavior of US common stock prises with that of foreign equities and the equities of real estate investment trusts (REITs). We also examine the relative cross-sectional response of prises of high- and low-dividend-paying stocks. We do not find any imprint of the dividend tax cut news on the value of the aggregate US stock market. On the other hand, high-dividend stocks outperformed low-dividend stocks by a few percentage points over the event windows, suggesting that the tax cut may have induced asset reallocation within equity portfolios. Finally, the positive abnormal return on nondividend paying US stocks in 2003 does not appear to be tied to tax cut news.
- Subjects
UNITED States; TAX cuts; DIVIDENDS; REAL estate investment trusts; STOCK prices; TAXATION
- Publication
Financial Management (Wiley-Blackwell), 2008, Vol 37, Issue 4, p625
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2008.00028.x