Abstract
This paper describes and estimates an empirical model that directly tests the dividend clientele hypothesis using data on individual portfolios from the 1983 Survey of Consumer Finances. The results provide evidence that investors are sensitive to tax rates when choosing portfolio dividend yields, and thus support a number of indirect tests that use security price data to investigate the clientele hypothesis. However, the approach taken in this paper avoids the difficulty, inherent in the indirect studies, of distinguishing between tax-driven and arbitrage- driven changes in ex-day security prices.
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