Individual-Shareholder-Level Dividend Taxes in Firm Valuation: New Evidence from Taiwan

• Main Authors: Nan-TingKuo, 郭南廷
• Other Authors: TsingZai Wu
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/74292647786678078140

博士 === 國立成功大學 === 會計學系碩博士班 === 99 === We examine the price reactions to the enactment of the integrated tax system in Taiwan to test whether dividend taxes are capitalized into share prices. Under the integrated tax system, shareholders receive a tax credit from dividend income received, and thus dividend tax burdens decrease. The unique dataset in Taiwan provides individual-shareholder-level shareholding information, and this allows us to directly determine not only the identity of the marginal investor but also their tax status. We expect and find that (1) a firm’s dividend yield is positively related to share price reactions to the enactment of the integrated tax system, (2) the marginal investors that determine the price reactions are individual shareholders, and (3) their tax statuses affect the positive association between price reactions and dividend yields. We further find that the effective tax rates of the marginal investors probably fall within the lowest and highest tax brackets, (0%-6%) and (30%-40%), respectively. Avoiding problems of the usage of the institutional shareholdings to represent the tax status of investors, as suggested by Guenther and Sansing (2010), our study contributes to provide direct and further evidence to support the traditional view of dividend taxes capitalization and to verify the existence of the marginal investor.