Corporate Dividend Yields and the Lifetime Capital Gains Exemption (ABSTRACT)
published: 2002 | Research publication | Refereed Journals - Accounting
Zeng, T. (2002). "Corporate Dividend Yields and the Lifetime Capital Gains Exemption". Canadian Tax Journal, 50 (4), 1307-1319.
ABSTRACT: This article examines the change in corporate dividend yields resulting from the introduction of the capital gains exemption to individual taxpayers in 1985. In that year, individual taxpayers were offered a cumulative lifetime capital gains exemption (LCGE) of $500,000. According to one hypothesis, the resulting relative tax disadvantage of dividends induces firms to reduce their dividend yields. Empirical evidence, based on financial reporting data for the years 1983 to 1987, supports this hypothesis. This article also provides evidence supporting the tax clientele effect and finds that the lower a firm's level of institutional shareholding, the greater the reduction in dividend yields after the introduction of the LCGE. In addition, the paper provides evidence to show that industry, firm size, and liquidity influence dividend yields.
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revised Jan 18/05
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