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Tax Costs and Signalling Benefits: The Impact of Surplus ACT

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  • Lynn Hodgkinson

Abstract

Companies with surplus ACT are faced with additional tax costs if they use dividends to signal information to investors, hence there is a trade‐off between tax costs and signalling benefits. This paper provides evidence that investors' reactions to dividend surprises are influenced by the signal generated by earnings and tax planning considerations. The results indicate that in the presence of a positive earnings signal and a binding tax constraint, decreases in dividends are value enhancing.

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  • Lynn Hodgkinson, 2002. "Tax Costs and Signalling Benefits: The Impact of Surplus ACT," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(3‐4), pages 411-428, April.
    • Handle: RePEc:bla:jbfnac:v:29:y:2002:i:3-4:p:411-428
    DOI: 10.1111/1468-5957.00436
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    Cited by:

    1. Alpa Dhanani, 2005. "Corporate Dividend Policy:," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1625-1672.
    2. Alpa Dhanani, 2005. "Corporate Dividend Policy: The Views of British Financial Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1625-1672, September.
    3. Dennis Oswald & Steven Young, 2008. "Tax‐efficient irregular payout methods: The case of B share schemes and capital repayments via a court‐approved scheme of arrangement," Accounting and Business Research, Taylor & Francis Journals, vol. 38(1), pages 49-70.

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