Journal of Finance Vol. 58 No. 1 2003

Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts

William M. Getry¹; Deen Kemsley^2,3; Christopher J. Mayer^1,4,5,6

¹ National Bureau of Economic Research · ² Yale University · ³ Columbia University · ⁴ University of the Arts · ⁵ William P. Wharton Trust · ⁶ University of Pennsylvania

Abstract

Prior empirical evidence regarding the impact of dividend taxes on firm valuation is mixed. This study avoids some of the complications encountered in previous empirical work by exploiting institutional characteristics of REITs, such as their limited discretion over dividend policy and the relative transparency of REIT assets. We regress the market value of equity on the market value of assets and tax basis, which creates tax deductions that lower future dividend taxes without affecting future pretax cash flow. We find that firm value is positively related to tax basis, suggesting that future dividend taxes are capitalized into share prices.

DOI

10.1111/1540-6261.00524

Volume

58

Issue

1

Pages

261-282

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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