Direct Evidence of Dividend Tax Clienteles
29 Pages Posted: 20 Nov 2006 Last revised: 19 Feb 2014
Date Written: February 2014
We evaluate the dividend tax clientele hypothesis using a data set of all stock portfolios in the market. Consistent with the predictions of Tax-CAPM, we find that tax-neutral investors tilt their stock portfolios towards dividend-paying stocks and earn about 40 basis points higher dividend yield than investment funds that prefer capital gains over dividends. We also document that private corporations, foundations, and partnerships have deviating dividend preferences, and discuss how these portfolio behaviors relate to special tax or charter provisions.
Keywords: Tax-CAPM, stock ownership, institutional investors, private corporations, foundations, partnerships
JEL Classification: G11, G35
Suggested Citation: Suggested Citation