Examining four years of dividend payouts impacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003

by Mercier, Donald W., Ph.D., CAPELLA UNIVERSITY, 2009, 95 pages; 3366065

Abstract:

The purpose of this study was to replicate and expand the study by Howton and Howton that examined the change in dividend policies affected by the change in dividend taxation from the Jobs and Growth Tax Relief Reconciliation Act of 2003. Quantitative research techniques such as matched pair t Test and proxies for the level of agency, asymmetric information, and investment opportunities were used in testing the percentage change in dividends paid, dividend yield, and dividend payout ratio. The research tested the hypotheses that higher dividend payouts would result from the 2003 dividend tax cut, that the probability of increasing dividends would be directly related to the agency costs of free cash flow, and that the probability of increasing dividends would be directly related to a firm's signaling value through a dividend increase. The results of the study indicated that dividend payouts increased significantly for the periods 2003–2006 after enactment of the change in tax law. There was no discernable difference in dividend policy in response to the tax rates on dividends using the variable of dividend yield. Furthermore, it appeared that the probability of increasing dividends was directly related to the firm's potential agency costs of free cash flow. Also, the history of previous performance variables of dividend yield and dividend change appears to be a good indicator of future performance. A future study of dividend payout policy caused by 2008–2009 weaker performance of operating income and less related cash could show the impact of corporate behavior to pay sustained dividends. Also, a study of dividend policy could be done measuring the 2009 proposed increased marginal tax impact on dividend payouts.

AdviserH. Perrin Garsombke
SchoolCAPELLA UNIVERSITY
Source TypeDissertation
SubjectsManagement; Economics; Public administration
Publication Number3366065

About ProQuest Dissertations & Theses
With nearly 4 million records, the ProQuest Dissertations & Theses (PQDT) Global database is the most comprehensive collection of dissertations and theses in the world. It is the database of record for graduate research.

PQDT Global combines content from a range of the world's premier universities - from the Ivy League to the Russell Group. Of the nearly 4 million graduate works included in the database, ProQuest offers more than 2.5 million in full text formats. Of those, over 1.7 million are available in PDF format. More than 90,000 dissertations and theses are added to the database each year.

If you have questions, please feel free to visit the ProQuest Web site - http://www.proquest.com - or contact ProQuest Support.