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Impact of Taxes and Agency Costs on Dividend Policy
[Vliv daní a nákladů zastoupení na dividendovou politiku]

Author

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  • Pavel Kraus

Abstract

Real estate investment trusts (REIT) in USA have been imposed a 95% required minimum dividend payout ratio. Empirical observations have proved that this limit is not sufficient to explain REIT's dividend policies. Most of them pay out more than required by tax law. Imperfect information and agency costs are hypothesized to be the explanation. Therefore, possible factors for identifying of agency costs are introduced - type of investment fund, ROA, Tobin's Q, asset growth, debt to asset - ratio. Finally, authors of empirical research have proved at least partial impact of agency costs on dividend. This article deals with possibilities of avoidance of tax burden on dividend income by levering of portfolio and conversion of dividends to capital gains. Furthermore, loan funds can be invested in life insurance to hold the risk of portfolio at the level of unlevered portfolio. There are other financial instruments such as building saving or pension insurance, which can be also used to unlever the portfolio.

Suggested Citation

  • Pavel Kraus, 2006. "Impact of Taxes and Agency Costs on Dividend Policy [Vliv daní a nákladů zastoupení na dividendovou politiku]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2006(3), pages 63-72.
    • Handle: RePEc:prg:jnlaop:v:2006:y:2006:i:3:id:90:p:63-72
    DOI: 10.18267/j.aop.90
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    References listed on IDEAS

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    1. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    2. Ko Wang & John Erickson & George W. Gau, 1993. "Dividend Policies and Dividend Announcement Effects for Real Estate Investment Trusts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(2), pages 185-201, June.
    3. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
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    Cited by:

    1. Petr Marek, 2007. "Agency theory and Its Impact on Corporate Finance Theory [Vliv teorie zastoupení na teorii podnikových financí]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2007(2), pages 6-16.

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    More about this item

    Keywords

    dividend; tax; capital gain;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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