Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 37 - 62 |
| Number of pages | 26 |
| Journal | Abacus |
| Volume | 51 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2015 |
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The dividend substitution hypothesis: Australian evidence. / Brown, Christine Ann; Handley, John C; O'Day, James William.
In: Abacus, Vol. 51, No. 1, 2015, p. 37 - 62.Research output: Contribution to journal › Article › Research › peer-review
TY - JOUR
T1 - The dividend substitution hypothesis: Australian evidence
AU - Brown, Christine Ann
AU - Handley, John C
AU - O'Day, James William
PY - 2015
Y1 - 2015
N2 - In a perfect capital market firms are indifferent to either dividends or repurchases as payout mechanisms, suggesting that the two payout methods should be perfect substitutes. Empirical research at the single country level, as well as cross country studies, provide evidence that dividends and repurchases act as substitutes (the dividend substitution hypothesis), and that the tax treatment of dividends versus capital gains affects this relation. Australia, which operates under a full dividend imputation system, has two types of repurchases: on- and off-market. On-market repurchases are taxed as capital gains while off-market repurchases comprise a large dividend component carrying valuable tax credits. Australia thus provides a natural setting to investigate how the tax treatment of proceeds affects the dividend substitution hypothesis. Dividend substitution is found to exist for on-market repurchases but not for off-market repurchases, thus providing further support for the idea that the tax treatment of proceeds affects the substitutability of repurchases and dividends.
AB - In a perfect capital market firms are indifferent to either dividends or repurchases as payout mechanisms, suggesting that the two payout methods should be perfect substitutes. Empirical research at the single country level, as well as cross country studies, provide evidence that dividends and repurchases act as substitutes (the dividend substitution hypothesis), and that the tax treatment of dividends versus capital gains affects this relation. Australia, which operates under a full dividend imputation system, has two types of repurchases: on- and off-market. On-market repurchases are taxed as capital gains while off-market repurchases comprise a large dividend component carrying valuable tax credits. Australia thus provides a natural setting to investigate how the tax treatment of proceeds affects the dividend substitution hypothesis. Dividend substitution is found to exist for on-market repurchases but not for off-market repurchases, thus providing further support for the idea that the tax treatment of proceeds affects the substitutability of repurchases and dividends.
U2 - 10.1111/abac.12041
DO - 10.1111/abac.12041
M3 - Article
VL - 51
SP - 37
EP - 62
JO - Abacus
JF - Abacus
SN - 0001-3072
IS - 1
ER -