Does Financial Constraint Affect the Relation between Shareholder Taxes and the Cost of Equity Capital?

• 成果类型: Article
• 署名作者: Dai, Zhonglan; Shackelford, Douglas A.; Zhang, Harold H.; Chen, Chongyang
• 署名单位: University of Texas System; University of Texas Dallas; University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50503
• 发表日期: 2013
• 页码: 1603-1627
• 关键词: IMPLIED COST; dividend taxes; forecasts; earnings

摘要

We argue that reductions in shareholder taxes should lower the cost of equity capital more for financially constrained firms than for other companies. Consistent with this prediction, we find that, following the 1997 (TRA) and the 2003 (JGTRRA) cuts in U. S. individual shareholder taxes, financially constrained firms enjoyed larger reductions in their cost of equity capital than did other firms. The results are consistent with the incidence of the tax reductions falling mostly on firms with both pressing needs for capital and disproportionate ownership by individuals, the only shareholders who benefited from the legislations. The paper provides a partial explanation for the seemingly puzzling finding that, following the unprecedented 2003 reduction in dividend tax rates, non-dividend-paying firms outperformed dividend-paying firms. The results suggest that it was not dividend status that mattered, but financial constraint, a common attribute of non-dividend-paying companies.