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

Posted: 11 Sep 2003

See all articles by William M. Gentry

William M. Gentry

Williams College - Department of Economics

Deen Kemsley

Tulane University - A.B. Freeman School of Business

Christopher J. Mayer

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

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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.

Suggested Citation

Gentry, William M. and Kemsley, Deen and Mayer, Christopher J., Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts. Available at SSRN: https://ssrn.com/abstract=377114

William M. Gentry (Contact Author)

Williams College - Department of Economics ( email )

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Deen Kemsley

Tulane University - A.B. Freeman School of Business ( email )

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Christopher J. Mayer

Columbia University - Columbia Business School, Finance ( email )

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National Bureau of Economic Research (NBER)

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