ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

How Did Dividend Boosting Tax Policy Affect Stock Price?

  • Youngdo Hong Department of Accounting, Graduate School, Dongguk University

Asian Tax Journal Vol. 16 No. 2 (2015), pp. 231-260

Abstract

In August 2014, Korean government announced the tax policy to cut dividend income tax for high dividend firms and to impose additional tax against the firms failing to meet the guideline of wage increase, investment and dividend based on firms' earning. We tested the market's reaction over the new dividend encouraging policy. First, we found the relation between the firms' cumulative abnormal returns(CAR) and dividend yields is significantly positive, which means the market expects that the shareholders of high dividend firms will get more after-tax dividend cash flow. Second, we could not find the significant relationship between the CAR and the firms which had increased dividend propensity in last two years, which means the investors do not expect the dividend propensity increasing firms will not be influenced by new tax policy. Third, we found that the significant relations between the CAR and the firms which could be imposed additional tax by new tax policy, which means the market expects these firms will increase dividend to avoid the additional tax. It' first time to study how the 2014 new tax policy affect stock prices and the study shows that investors expect the new dividend boosting policy will work after the implementation of the policy.

Keywords

  • Dividend Tax Cut
  • Dividend Yield
  • Dividend Propensity
  • CAR

Related Articles

ATJ
E-SubmissionSitemapContact Us RSS

Asian Tax Journal

Address : 3F, KICPA Bldg., 12 Chungjeongro 7-gil, Seodaemun-gu, Seoul 03736, Republic of Korea

Editor-in-Chief : Prof. Wanyong Kim Editorial Office : Dept. of Finance, Accounting & Taxation, Hanyang Cyber University, 220 Wangsimni-ro, Seongdong-gu, Seoul, Republic of Korea Tel : +82-2-2290-0418 / +82-10-8664-1117 E-mail : taxresearch2@hanmail.net