[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ecm/ausm04/97.html
   My bibliography  Save this paper

Dividend taxation and Corporate investment: A comparative study between the classical system and imputation system of dividend taxation in the United States and Australia

Author

Listed:
  • Robert Brooks
  • Bhavish Jugurnath
  • Mark Stewart
Abstract
In recent times a number of countries initiated some important tax reforms to eliminate the distortions of double taxation. In this context, Australia adopted a dividend imputation system in 1987, while the US employed the 1986 Tax Reform Act (TRA). The analysis examines the effect on the level of corporate capital investment on proxies for corporate tax rates, financial leverage, liquidity, capital intensity and firm size after controlling for the tax reforms. The empirical results provide evidence that: (1) dividend imputation as introduced in Australia is an effective way to reduce the distortions caused by the traditional system of taxation. (2) Compared with the TRA, dividend imputation has been better able to positively stimulate corporate capital investment. (3) TRA effect on corporate investment is more pronounced in the US for firms having a net operating loss. (4) Corporate tax rates play a role in corporate investment decision in Australia

Suggested Citation

  • Robert Brooks & Bhavish Jugurnath & Mark Stewart, 2004. "Dividend taxation and Corporate investment: A comparative study between the classical system and imputation system of dividend taxation in the United States and Australia," Econometric Society 2004 Australasian Meetings 97, Econometric Society.
    • Handle: RePEc:ecm:ausm04:97
    as

    Download full text from publisher

    File URL: http://repec.org/esAUSM04/up.11997.1077059500.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kari, Seppo & Ylä-Liedenpohja, Jouko, 2002. "Classical Corporation Tax as a Global Means of Tax Harmonization," Discussion Papers 266, VATT Institute for Economic Research.
    2. Gilchrist, Simon & Himmelberg, Charles P., 1995. "Evidence on the role of cash flow for investment," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 541-572, December.
    3. Abrutyn, Stephanie & Turner, Robert W., 1990. "Taxes and Firms' Dividend Policies: Survey Results," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(4), pages 491-496, December.
    4. Peterson, Pamela P. & Benesh, Gary A., 1983. "A Reexamination of the Empirical Relationship between Investment and Financing Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(4), pages 439-453, December.
    5. Abrutyn, Stephanie & Turner, Robert W., 1990. "Taxes and Firms' Dividend Policies: Survey Results," National Tax Journal, National Tax Association, vol. 43(4), pages 491-96, December.
    6. McCabe, George M., 1979. "The Empirical Relationship Between Investment and Financing: A New Look," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(1), pages 119-135, March.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    8. McDonald, John G. & Jacquillat, Bertrand & Nussenbaum, Maurice, 1975. "Dividend, Investment and Financing Decisions: Empirical Evidence on French Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(5), pages 741-755, December.
    9. Gupta, Sanjay & Newberry, Kaye, 1997. "Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data," Journal of Accounting and Public Policy, Elsevier, vol. 16(1), pages 1-34.
    10. Dennis C. Mueller, 1967. "The Firm Decision Process: An Econometric Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 81(1), pages 58-87.
    11. Randall Morck, 2003. "Why Some Double Taxation Might Make Sense: The Special Case of Inter-corporate Dividends," NBER Working Papers 9651, National Bureau of Economic Research, Inc.
    12. Fama, Eugene F, 1974. "The Empirical Relationships Between the Dividend and Investment Decisions of Firms," American Economic Review, American Economic Association, vol. 64(3), pages 304-318, June.
    13. Higgins, Robert C., 1972. "The Corporate Dividend-Saving Decision," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(2), pages 1527-1541, March.
    14. Harris, TS & Kemsley, D, 1999. "Dividend taxation in firm valuation: New evidence," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 275-291.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ming-Chang Cheng & Ching-Hwa Lee, 2016. "Trading Activities Around Ex-Dividend Days: Evidence from the Taiwan Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-17, March.
    2. Claudiu Tiberiu Albulescu, 2020. "Investment Behaviour and Firms’ Financial Performance: A Comparative Analysis Using Firm-Level Data from the Wine Industry," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 9(1), pages 75-94.
    3. Ramachandran Azhagaiah & Selvaraj Sathia, 2012. "Corporate Leverage and Financial Decision in the Indian Textile Industry," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(1 (Spring), pages 87-114.
    4. Ashfaq Habib & M. Ishaq Bhatti & Muhammad Asif Khan & Zafar Azam, 2021. "Cash Holding and Firm Value in the Presence of Managerial Optimism," JRFM, MDPI, vol. 14(8), pages 1-18, August.
    5. Jack Francis & Tsing Wu & Nan-Ting Kuo, 2012. "Effects of tax reform on drop-off ratios and on the ex-dividend and ex-right prices," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 147-164, August.
    6. Shastitko, Andrey (Шаститко, Андрей) & Komkova, Anastasia Andreevna (Комкова, Анастасия Андреевна) & Kurdin, Alexander (Курдин, Александр), 2016. "Competition Policy and Incentives for Innovation [Экономическая Теория Об Адвокатировании Конкуренции]," Working Papers 1448, Russian Presidential Academy of National Economy and Public Administration.
    7. Mishra, Anil V. & Ratti, Ronald A., 2014. "Taxation of domestic dividend income and foreign investment holdings," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 218-231.
    8. Carmen Bachmann & Martin Baumann & Konrad Richter, 2018. "The effects on investment incentives of an allowance for corporate equity tax system: the Belgian case as an example," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 943-965, November.
    9. Gary, Robert F. & Moore, Jared A. & Sisneros, Craig A. & Terando, William D., 2016. "The impact of tax rate changes on intercorporate investment," Advances in accounting, Elsevier, vol. 34(C), pages 55-63.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
    2. Cheng-Few Lee & Woan-lih Liang & Fu-Lai Lin & Yating Yang, 2016. "Applications of simultaneous equations in finance research: methods and empirical results," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 943-971, November.
    3. Yu, Chih-Ping, 2015. "Financial policies on firm performance: The U.S. insurance industry before and after the global financial crisis," Economic Modelling, Elsevier, vol. 51(C), pages 391-402.
    4. Mbodja Mougoué & Tarun K. Mukherjee, 1994. "An Investigation Into The Causality Among Firms' Dividend, Investment, And Financing Decisions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(4), pages 517-530, December.
    5. Ben R. Craig & Christopher A. Richardson, 1996. "The reduced form as an empirical tool: a cautionary tale from the financial veil," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 16-25.
    6. Sabur Mollah, 2011. "Do emerging market firms follow different dividend policies?," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 28(2), pages 118-135, June.
    7. Tao Zeng, 2011. "Intercorporate Ownership, Taxes, and Corporate Payout Choices," Accounting Perspectives, John Wiley & Sons, vol. 10(4), pages 265-283, December.
    8. Deng, Lu & Li, Sifei & Liao, Mingqing & Wu, Weixing, 2013. "Dividends, investment and cash flow uncertainty: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 112-124.
    9. Serge Nadeau & Robert P. Strauss, 1991. "Tax Policies and the Real and Financial Decisions of the Firm: the Effects of the Tax Reform Act of 1986," Public Finance Review, , vol. 19(3), pages 251-292, July.
    10. Michael S. Rozeff, 1982. "Growth, Beta And Agency Costs As Determinants Of Dividend Payout Ratios," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(3), pages 249-259, September.
    11. P. S. Sanju & P. S. Nirmala & M. Ramachandran, 2011. "Are dividend and investment decisions separable?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(20), pages 1515-1524.
    12. Li, Shengfeng & Hoque, Hafiz & Thijssen, Jacco, 2021. "Firm financial behaviour dynamics and interactions: A structural vector autoregression approach," Journal of Corporate Finance, Elsevier, vol. 69(C).
    13. Fernau, Erik & Hirsch, Stefan, 2019. "What drives dividend smoothing? A meta regression analysis of the Lintner model," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 255-273.
    14. Lahiri, Poulomi & Chakraborty, Indrani, 2014. "Explaining dividend gap between R&D and non-R&D Indian companies in the post-reform period," Research in International Business and Finance, Elsevier, vol. 30(C), pages 268-283.
    15. Tao Zeng, 2016. "Corporate Social Responsibility, Tax Aggressiveness, and Firm Market Value," Accounting Perspectives, John Wiley & Sons, vol. 15(1), pages 7-30, March.
    16. Lee, King Fuei, 2018. "Peer Effects on Firm Dividend Policies in Taiwan," MPRA Paper 103102, University Library of Munich, Germany.
    17. Gugler, Klaus, 2003. "Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1297-1321, July.
    18. Adaoglu, Cahit, 2000. "Instability in the dividend policy of the Istanbul Stock Exchange (ISE) corporations: evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 1(3), pages 252-270, November.
    19. Lee, King Fuei, 2010. "Retail minority shareholders and corporate reputation as determinant of dividend policy in Australia," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 351-368, September.
    20. Taylor, Grantley & Richardson, Grant, 2014. "Incentives for corporate tax planning and reporting: Empirical evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 1-15.

    More about this item

    Keywords

    dividend taxation; imputation system; classical system; corporate investments;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:ausm04:97. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.