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Direct evidence of dividend tax clienteles

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  • Dahlquist, Magnus
  • Robertsson, Göran
  • Rydqvist, Kristian

Abstract

The paper is the first to evaluate the dividend tax clientele hypothesis using a data set of all domestic stock portfolios in the market. We find that investment funds that face a higher effective tax rate on dividend income than on capital gains tilt their portfolios away from dividend-paying stocks. These investors consequently earn a dividend yield that is about 35 basis points lower than that of investors who are tax neutral between dividends and capital gains (pension funds, unit-linked insurance, life insurance). Consistent with tax rules and charter provisions, we also find that private corporations prefer growth stocks, that foundations exhibit strong dividend preferences, and that partnerships rarely hold stocks portfolios.

Suggested Citation

  • Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2014. "Direct evidence of dividend tax clienteles," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 1-12.
    • Handle: RePEc:eee:empfin:v:28:y:2014:i:c:p:1-12
    DOI: 10.1016/j.jempfin.2014.05.003
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    9. Kathryn E. Easterday & Pradyot K. Sen, 2023. "Another look at the dividend-price relationship in the accounting valuation framework," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 879-925, October.
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    12. Masanori Orihara, 2023. "Election-Day Market Reactions to Tax Proposals: Evidence from a Close Vote," Working Papers 2219, Waseda University, Faculty of Political Science and Economics.
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    More about this item

    Keywords

    After-tax CAPM; Stock ownership; Institutional investors; Private corporations; Foundations; Partnerships;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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