Are shareholder dividend taxes on corporate retained earnings impounded in equity prices? Additional evidence and analysis

The purpose of this paper is to evaluate the model used by Harris and Kemsley (J. Ace. Res. 37 (1999) 275), Harris et at. (J. Public Econ. 79 (2001) 569) and Collins and Kemsley (Ace. Rev. 75 (2000) 405), hereafter CHHK, and to investigate their empirical results. We demonstrate that the model underlying CHHK is flawed, and show that their interpretation of the data is incorrect. Finally, we find that after controlling for market to book ratio, Harris and Kemsley's first main result vanishes. In total, we reject CHHK's conclusions that equity prices are discounted for shareholder dividend taxes on retained earnings. (C) 2003 Elsevier Science B.V. All rights reserved.