IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-19-00932.html
   My bibliography  Save this article

Tax avoidance and asset returns: some theoretical results on the tax clientele effects

Author

Listed:
  • Liqun Liu

    (Texas A&M University)

  • Zijun Wang

    (University of Texas at San Antonio)

Abstract

Mutual funds are held by investors in both conventional taxable savings accounts and tax-deferred retirement accounts, and some investors fall in higher tax brackets than others. Recent empirical research investigates how the marginal tax rate of a mutual fund affects the fund's tax avoidance behavior and asset returns. This paper studies theoretically the tax clientele effects on the tax avoidance and performance of mutual funds. It finds that when the marginal tax rate of a mutual fund increases, the mutual fund is more prone to deferring the realization of capital gains, the before-tax return decreases, and the after-tax return also decreases.

Suggested Citation

  • Liqun Liu & Zijun Wang, 2020. "Tax avoidance and asset returns: some theoretical results on the tax clientele effects," Economics Bulletin, AccessEcon, vol. 40(1), pages 41-49.
  • Handle: RePEc:ebl:ecbull:eb-19-00932
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2020/Volume40/EB-20-V40-I1-P4.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shoven, John B. & Sialm, Clemens, 2004. "Asset location in tax-deferred and conventional savings accounts," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 23-38, January.
    2. Dickson, Joel M. & Shoven, John B. & Sialm, Clemens, 2000. "Tax Externalities of Equity Mutual Funds," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(3), pages 607-628, September.
    3. Daeyong Lee, 2017. "Dividend taxation and household dividend portfolio decisions: evidence from the U.S. Jobs and Growth Tax Relief Reconciliation Act of 2003," Applied Economics, Taylor & Francis Journals, vol. 49(8), pages 723-737, February.
    4. Clemens Sialm & Hanjiang Zhang, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 735-777, April.
    5. Gibson, Scott & Safieddine, Assem & Titman, Sheridan, 2000. "Tax-Motivated Trading and Price Pressure: An Analysis of Mutual Fund Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 369-386, September.
    6. Clemens Sialm & Laura Starks, 2012. "Mutual Fund Tax Clienteles," Journal of Finance, American Finance Association, vol. 67(4), pages 1397-1422, August.
    7. Laura Kawano, 2014. "The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 114-136, February.
    8. Bergstresser, Daniel & Poterba, James, 2002. "Do after-tax returns affect mutual fund inflows?," Journal of Financial Economics, Elsevier, vol. 63(3), pages 381-414, March.
    9. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2014. "Direct evidence of dividend tax clienteles," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 1-12.
    10. Bergstresser, Daniel & Pontiff, Jeffrey, 2013. "Investment taxation and portfolio performance," Journal of Public Economics, Elsevier, vol. 97(C), pages 245-257.
    Full references (including those not matched with items on IDEAS)

    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. Clemens Sialm & Hanjiang Zhang, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 735-777, April.
    2. Beggs, William & Hill-Kleespie, Austin & Liu, Yanguang, 2022. "Mutual fund tax implications when investment advisors manage tax-exempt separate accounts," Journal of Banking & Finance, Elsevier, vol. 134(C).
    3. Koch, Reinald & Schön, Lena, 2024. "Taxes and the investment of mutual funds: Evidence from the German Investment Tax Reform," arqus Discussion Papers in Quantitative Tax Research 282, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. George Aragon & Bing Liang & Hyuna Park, 2014. "Onshore and Offshore Hedge Funds: Are They Twins?," Management Science, INFORMS, vol. 60(1), pages 74-91, January.
    5. Clemens Sialm & Laura T. Starks & Hanjiang Zhang, 2015. "Defined Contribution Pension Plans: Sticky or Discerning Money?," Journal of Finance, American Finance Association, vol. 70(2), pages 805-838, April.
    6. Zhe Chen & David R. Gallagher & Graham Harman & Geoffrey J. Warren & Lihui Xi, 2020. "How much does tax erode fund excess returns?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3407-3446, December.
    7. Dimmock, Stephen G. & Feng, Fan & Zhang, Huai, 2023. "Mutual funds' capital gains lock-in and earnings management," Journal of Corporate Finance, Elsevier, vol. 80(C).
    8. James M. Poterba & John B. Shoven & Clemens Sialm, 2000. "Asset Location for Retirement Savers," NBER Working Papers 7991, National Bureau of Economic Research, Inc.
    9. Fong, Kingsley Y.L. & Gallagher, David R. & Lau, Sarah S.W. & Swan, Peter L., 2009. "Do active fund managers care about capital gains tax efficiency?," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 257-270, April.
    10. Allison L. Evans, 2008. "Portfolio Manager Ownership and Mutual Fund Performance," Financial Management, Financial Management Association International, vol. 37(3), pages 513-534, September.
    11. Johnson, Woodrow T. & Poterba, James M., 2016. "The effect of taxes on shareholder inflows around mutual fund distribution dates," Research in Economics, Elsevier, vol. 70(1), pages 7-19.
    12. Greene, Jason T. & Hodges, Charles W. & Rakowski, David A., 2007. "Daily mutual fund flows and redemption policies," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3822-3842, December.
    13. Woodrow T. Johnson & James M. Poterba, 2008. "Taxes and Mutual Fund Inflows Around Distribution Dates," NBER Working Papers 13884, National Bureau of Economic Research, Inc.
    14. James M. Poterba & John B. Shoven, 2002. "Exchange-Traded Funds: A New Investment Option for Taxable Investors," American Economic Review, American Economic Association, vol. 92(2), pages 422-427, May.
    15. Cici, Gjergji & Kempf, Alexander & Sorhage, Christoph, 2012. "Are financial advisors useful? Evidence from tax-motivated mutual fund flows," CFR Working Papers 12-09, University of Cologne, Centre for Financial Research (CFR).
    16. Rydqvist, Kristian & Spizman, Joshua & Strebulaev, Ilya, 2014. "Government policy and ownership of equity securities," Journal of Financial Economics, Elsevier, vol. 111(1), pages 70-85.
    17. Martin Rohleder & Dominik Schulte & Janik Syryca & Marco Wilkens, 2018. "Mutual Fund Stock†Picking Skill: New Evidence from Valuation†versus Liquidity†Motivated Trading," Financial Management, Financial Management Association International, vol. 47(2), pages 309-347, June.
    18. Bührle, Anna Theresa & Yen, Chia-Yi, 2023. "Too much "skin in the game" ruins the game: Evidence from managerial capital gains taxes," ZEW Discussion Papers 23-028, ZEW - Leibniz Centre for European Economic Research, revised 2023.
    19. Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171, Elsevier.
    20. Nicholas Moehle & Mykel J. Kochenderfer & Stephen Boyd & Andrew Ang, 2021. "Tax-Aware Portfolio Construction via Convex Optimization," Journal of Optimization Theory and Applications, Springer, vol. 189(2), pages 364-383, May.

    More about this item

    Keywords

    mutual funds; tax clienteles; tax avoidance; before-tax return; after-tax return;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    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:ebl:ecbull:eb-19-00932. 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: John P. Conley (email available below). General contact details of provider: .

    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.