Abstract
This paper addresses the question of dividend clienteles based on shareholder-level taxation. In the United Kingdom in 1997, radical changes were made to the way in which the dominant shareholder clientele was taxed on dividend income. These changes provided a unique quasi-experimental opportunity for a direct test of dividend clienteles, and of tax theories. This issue is central to policy formation, and to predicting the likely impact on shareholder value of changes to the dividend policy pursued by firms.Evidence is presented of two distinct tax-based clienteles in the United Kingdom, with contrasting preferences, one of which was strong enough to influence payout in the firms in which this clientele invested. The implication for South African firms is that, as the tax system changes, the payout preference of shareholders may also change. It is imperative that corporate financial managers react to these clienteles, and their requirements.
Highlights
Companies seek to add shareholder value, but often the impact of tax is inadequately considered
Can firms add value by knowing their shareholder clientele?. These questions are examined in the context of tax changes that took place in the United Kingdom in 1997, which presented an opportunity to isolate the impact of shareholder level taxes
The most obvious is that the ownership information may act as a proxy for an important omitted correlated variable
Summary
Companies seek to add shareholder value, but often the impact of tax is inadequately considered. This paper raises and begins to address four questions: Do shareholder dividend clienteles exist?. These questions are examined in the context of tax changes that took place in the United Kingdom in 1997, which presented an opportunity to isolate the impact of shareholder level taxes. The tax position of shareholders is explicitly calculated rather than proxied, and a unique database incorporating ownership with company accounting data is used to test the hypotheses. The paper is organised as follows: Section 1 very briefly reviews the theory of tax-based dividend clienteles.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
