Foreign Portfolio Investment and Shareholder Dividend Taxes

Author:

Amiram Dan1,Frank Mary Margaret2

Affiliation:

1. Columbia University

2. University of Virginia

Abstract

ABSTRACT We investigate the effects of dividend taxes on foreign equity portfolio holdings. Based on the extension of an equilibrium model with risky assets to an international setting, we predict that a change in the tax rate on dividends of a country's domestic investors is positively related to changes in foreign investors' portfolio holdings in that country. The evidence from two research settings, which exploit changes in the national tax policies of different countries, supports this prediction. More generally, the model predicts that a foreign investor's equilibrium portfolio holdings in a country are negatively related to the dividend tax rate that she directly pays on assets in that country and positively related to the weighted-average dividend tax rate of worldwide investors in that country. Results from analyses using panel data provide empirical support for these predictions.

Publisher

American Accounting Association

Subject

Economics and Econometrics,Finance,Accounting

Reference32 articles.

1. Investor protection, taxation, and dividends;Alzahrani;Journal of Corporate Finance,2012

2. Financial information, globalization and foreign investment decisions;Amiram;Journal of International Accounting Research,2012

3. U.S. international equity investment;Ammer;Journal of Accounting Research,2012

4. Valuation and corporate equity policy;Auerbach;Journal of Public Economics,1979

5. The effect of shareholder-level dividend taxes on stock prices: Evidence from the Revenue Reconciliation Act of 1993;Ayers;The Accounting Review,2002

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