Does a change in dividend tax rates in the U.S. affect equity prices of non-U.S. stocks?

  • David G. KenchingtonEmail author


I investigate the link between dividend taxes and stock prices in a global setting. Based on findings from an open-economy after-tax capital asset pricing model, I predict that, when the U.S. cut its dividend tax rate in 2003, stock prices will increase for high-dividend yield foreign firms that are eligible for a U.S. income tax treaty. I examine returns for firms headquartered in treaty countries and find results consistent with this prediction. In further tests, I find that the same relation does not hold for firms in nontreaty countries. My paper is the first to provide direct evidence about whether and how dividend taxes affect equity prices across an integrated global economy.


Shareholder dividend taxes Tax capitalization Stock prices Expected stock returns 

JEL classification

H24 G12 



This paper is based on my dissertation at the University of Arizona. I express gratitude for the support and guidance of my dissertation committee: Dan Dhaliwal (chair), Christopher Lamoureux (finance), and Kirsten Cook. This paper has also benefited from the comments and suggestions of two anonymous reviewers, Jenny Brown, Andrew Call, Dane Christensen, Paul Fischer (the editor), Curtis Hall, Phillip Lamoreaux, Michal Matejka, Landon Mauler, Shyam V. Sunder, Roger White, and particularly Pablo Casas Arce as well as workshop participants at the 2012 BYU Accounting Symposium, Arizona State University, George Mason University, The University of Iowa, University of Arizona, University of British Columbia, University of Missouri – Columbia, and University of Waterloo. I also thank Jim Seida (discussant) and participants at the 2013 Journal of the American Tax Association Midyear Meeting.


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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.W. P. Carey School of Business, School of AccountancyArizona State UniversityTempeUSA

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