Shareholder income taxes and the relation between earnings and returns

Dan S Dhaliwal, Merle M. Erickson, Oliver Zhen Li

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

The purpose of this study is to investigate whether and how shareholder-level taxes affect earnings response coefficients (ERCs). Our tests indicate that when the tax rate on dividends increases, ERCs decrease for firms with high levels of dividend yield and whose marginal investor is likely to be an individual. For firms with high levels of share repurchase yield and whose marginal investor is likely to be an individual, an increase in dividend tax rate has no discernible effect on ERCs. These results are consistent with the notion that the tax penalty on dividends, relative to capital gains, reduces the earnings-return relation.

Original languageEnglish (US)
Pages (from-to)587-616
Number of pages30
JournalContemporary Accounting Research
Volume22
Issue number3
DOIs
StatePublished - Sep 2005

Fingerprint

Income tax
Shareholders
Earnings response coefficients
Dividends
Investors
Tax
Tax rate
Dividend yield
Share repurchases
Penalty
Earnings-return relation
Dividend taxes
Capital gains

Keywords

  • Dividend
  • Earnings response coefficient
  • Institutional ownership
  • Shareholder taxes

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Shareholder income taxes and the relation between earnings and returns. / Dhaliwal, Dan S; Erickson, Merle M.; Li, Oliver Zhen.

In: Contemporary Accounting Research, Vol. 22, No. 3, 09.2005, p. 587-616.

Research output: Contribution to journalArticle

Dhaliwal, Dan S ; Erickson, Merle M. ; Li, Oliver Zhen. / Shareholder income taxes and the relation between earnings and returns. In: Contemporary Accounting Research. 2005 ; Vol. 22, No. 3. pp. 587-616.
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