Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia

Dividend taxation and corporate investment: a comparative study between the classical system and... In recent times a number of countries have initiated some important tax reforms to eliminate the distortions of double taxation. In this context, Australia adopted a dividend imputation system in 1987, while the US employed the 1986 Tax Reform Act (TRA). The analysis in this paper examines the effects on the level of corporate capital investment, on proxies for corporate tax rates, financial leverage, liquidity, capital intensity and firm size after controlling for the tax reforms. The empirical results provide evidence that: (1) dividend imputation as introduced in Australia is an effective way to reduce the distortions caused by the traditional system of taxation. (2) Compared with the TRA, dividend imputation has been better able to positively stimulate corporate capital investment. (3) TRA effect on corporate investment is more pronounced in the US for firms having a net operating loss. (4) Individual tax rates play a role in corporate investment decisions in both the US and Australia. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia

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Publisher
Springer Journals
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-007-0073-4
Publisher site
See Article on Publisher Site

Abstract

In recent times a number of countries have initiated some important tax reforms to eliminate the distortions of double taxation. In this context, Australia adopted a dividend imputation system in 1987, while the US employed the 1986 Tax Reform Act (TRA). The analysis in this paper examines the effects on the level of corporate capital investment, on proxies for corporate tax rates, financial leverage, liquidity, capital intensity and firm size after controlling for the tax reforms. The empirical results provide evidence that: (1) dividend imputation as introduced in Australia is an effective way to reduce the distortions caused by the traditional system of taxation. (2) Compared with the TRA, dividend imputation has been better able to positively stimulate corporate capital investment. (3) TRA effect on corporate investment is more pronounced in the US for firms having a net operating loss. (4) Individual tax rates play a role in corporate investment decisions in both the US and Australia.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 12, 2007

References

  • How firms make capital expenditure decisions: Financial Signals, Internal Cash Flows, Income Taxes and the Tax Reform Act of 1986
    Beatty, R; Riffe, S; Welch, I

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