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An Indirect Test For Dividend Relevance

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  • Mazhar A. Siddiqi

Abstract

This paper provides an indirect test of dividend relevance conducted in periods that straddle the tax law changes effected by the Tax Reform Act of 1986. Using the abnormal ex‐dividend day return to proxy for the tax penalty of dividends, I find a negative relation between changes in this tax penalty and changes in dividends paid. This result is consistent with corporations' equating, at the margin, the costs of dividend payout to its benefits. Hence, this is indirect evidence of dividend relevance.

Suggested Citation

  • Mazhar A. Siddiqi, 1995. "An Indirect Test For Dividend Relevance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(1), pages 89-101, March.
    • Handle: RePEc:bla:jfnres:v:18:y:1995:i:1:p:89-101
    DOI: 10.1111/j.1475-6803.1995.tb00213.x
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    Cited by:

    1. Bechman, Ken L. & Raaballe, Johannes, 2006. "Taxable Cash Dividends," Working Papers 2005-4, Copenhagen Business School, Department of Finance.
    2. Mazhar Siddiqi, 1997. "Using ex-day returns to separate the tax and information effects of dividend changes," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 21(2), pages 83-92, June.

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