The Impact Of Taxation On Dividends - Free Essay Example

Sample details Pages: 5 Words: 1588 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Research paper Tags: Taxation Essay Did you like this example? Abstract: This research paper attempts to analyze the different tax systems and their impact on the dividend distributions. It is explained that the dividend payout is monotonically distributed across tax regimes as the firms in double taxation (classical) system have significantly lower payouts than companies in the partial-imputation system, while companies in the full imputation system pay the highest payouts. Our results hold when the other fundamental determinants of dividends are held through Lintnerà ¢Ã¢â€š ¬Ã¢â€ž ¢s model and the actual payout ratio. Overall, it is reported that the type of dividend tax system affect the dividend payout. Introduction: The tax burden on dividends depends on corporate and personal income tax systems. In a classical system, the total tax is the sum of the corporation tax, the effective capital gains tax and the tax on dividends. Typically the tax on dividends exceeds the gains tax creating an incentive to reduce dividends. In an imputation system on the other hand, the total tax is given by the corporation tax plus the effective gains tax plus the reduced dividend tax. If the reduction in the tax on dividend is large enough to make reduced tax dividend lower than the effective capital gains tax, an incentive to increase dividends is created. Understanding the impact of taxes on dividend policy is important for both academicians and practitioners. From academic perspective, the relevance of taxation will highlight the extent to which companies consider the after tax return of their shareholders and how any tax reform will affect the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s dividend payouts. For practitioners, kno wing how taxation affects dividends is also of considerable interest. Since shareholders are taxed differently, if stock prices reflect the tax status of one particular group of investors, other groups can take advantage of these differences by, namely trading around the ex-dividend dates to capture/avoid dividends. Moreover, understanding the impact of dividend taxation will be important for fund managers and analysts as changes in tax codes could affect the net returns and the relative pricing of securities. Most countries around the world adopt different systems of taxing dividends. Some follow a classical tax system where corporate income is treated differently from personal income in terms of statutory tax rate and deduction rules, others use some level of integration between corporate and personal income. The important distinction between these two different systems is the taxation of dividends. Countries that follow the classical system separate shareholders income from th e income of their corporations. As a result the same unit of earning in the company is taxed twice when it is paid as dividend: first at the corporate level and then at the personal level; a disadvantage known as à ¢Ã¢â€š ¬Ã…“double taxationà ¢Ã¢â€š ¬?. In contrast, countries that follow a more integrated system usually have a full or partial relieve from dividend tax in consideration of the fact that the same unit of earning has been taxed at the corporate level. In Pakistan, the system of double taxation (classical system) is implemented i.e. the dividends are taxed on corporate level and then the same unit of earning is taxed at shareholder level. Don’t waste time! Our writers will create an original "The Impact Of Taxation On Dividends" essay for you Create order Background More than forty years ago, Miller and Modigliani (1961) showed that, after some assumptions, such as complete and perfect capital markets, a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s dividend policy does not affect its value. While this theory has highlighted the five main factors that could affect dividends, namely signalling, agency costs, behavioral (catering and mental accounting) and taxation, the empirical evidence provided to-date on such effects is mixed, (Allen and Michaely (2006) and Graham (2003). In particular, while in theory taxation is expected to prevent companies from paying dividends, most previous empirical studies have shown that taxation plays a minor role in dividend decision (e.g. Brav et al., (2005), Fama and French (2001), Julio and Ikenberry (2005). Therefore it is not clear why companies still pay dividends despite their heavy tax burden. In this paper, the dividend tax systems is analyzed and test the hypotheses that, in countries where the tax burden on dividends is high , companies pay low dividends. Although dividends may have a tax disadvantage, previous studies show that shareholders react positively to dividend increases and negatively to dividend decreases (e.g. Michealy, Thaley and Womack (1995). Long (1978) provides evidence that in dual class shares, investors favor cash dividend over stock dividend stocks. The tax disadvantage of dividends and yet their popularity challenges the traditional policy of payout policy. Blackà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1976) dividend puzzle discusses the weaknesses of the finance theory in answering the simple question, why firms subject to a classical tax system to pay dividends? Some studies explain dividends away from taxes. For example Lintner (1956) in his classical study, shows that firms adopt a subjective target payout policy by decreasing dividends very slowly and hardly ever cut them. Models based on information asymmetry suggest that dividend changes provide information about the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s future cash flows (Bhattacharya (1979) and Miller and Rock (1985) or about the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s cost of capital and/or maturity stage (Grullon, Michaely and Swaminathon (2002), Grullon and Michaely (2000). From the agency theory perspective, dividends provide a disciplining tool to reduce agency costs (Easterbrook (1984) and Jensen (1986). Behavioral finance theory suggests that dividends are paid in part to accommodate certain biases in individuals such as market sentiment (Baker and Wurgler (2004) or self control, mental accounting and regret avoidance (Shefrin and Statman (1984). Taxation moel suggests that if dividends are taxed at a higher rate than capital gains, firms should prefer to retain earnings or buy back shares (e.g. Auerbach (1979), Bradford (1981) , Auerbach and Hasset (2003), Lasfer (1996). Literature Review: To assess the impact of dividend tax on investment and financial policy of the firm, the literature has followed three basic approaches. The first approach is to examine the relation between the risk-adjusted pretax rate of return and dividend yield. If dividend tax is relevant and if dividends are taxed at a higher rate than capital gain, than pretax return should increase in proportion to dividend yield to compensate for dividend tax disadvantage. Black and Scholes (1974), Gordon and Bradford (1980), and Miller and Scholes (1982) did not find evidence that the tax differential between dividends and capital gain have an impact on pretax returns, while Lintzenburger and Ramaswamy (1979) find evidence to the contrary. The second approach is to examine the ex-dividend behavior of stock prices. Absent dividend tax, the value of a stock should fall by the full amount of the dividend on the ex-dividend day. Elton and Gruber (1970) provide evidence that US stock prices fall by less than the full amount of the dividends on the ex-dividend day. Poterba and Summers (1985) and Lasfer (1996) show similar results. Other studies did not find evidence that the tax differential between dividends and capital gains have an impact on the ex-dividend behavior, for example, Hearth and Rimbey (1993), Lakonishok and Vermaelen (1983). The third approach is to employ event study analysis. Changes in tax laws provide a natural experiment for investigating the impact of dividend tax on investment and financial decision. Poterba and Summers (1985) show that higher dividend tax is associated with lower investment and dividends. Poterba (2004) study shows that the tax disadvantage relative to capital gains has a negative effect on dividend payment. Blouin et al. (2004) study the impact of the 2003 tax reduction in the US and find dramatic increase in the regular dividends and the special dividends after enactment and a decline in the share repurchases. Chetty and Saez (2004) report on in crease in the fraction of dividend payers following the 2003 dividend tax reduction. In Pakistan the system of double taxation is implemented on dividends, its comparison with countries implying other system of taxations is studied. Objectives: The objectives of this research paper are to find out the impact of taxation on dividend policy and its impact on the financial and investment decision of the firms. Research Question: Is the dividend payout ratio of firms in full or partial integration system higher than the dividend payout ratio of firms in double taxation system? Theoretical Framework: Dividend Payout Taxation (Independent Variable) (Independent Variable) (Dependent Variable) Hypotheses: H1: Dividend payout ratio is higher in full and partial integration systems than in classical system of taxation. H2: Dividend payout ratio is NOT higher in full and partial integration systems than in classical system of taxation. Hypotheses Testing: Unlike the full integration system, the classical system carries with it a disadvantage of double taxation. If tax on dividends has an impact on the financial policy of the firm, then firms in classical system will lower or avoid dividends as much as they can, while firms in full integration systems will not have to lower their dividends. Thus the hypothesis H1 is expected to be true. System No. of Firm Observations Net Tax Rate on Dividend (%)* Payout Ratio =DPS/EPS* Classical System 18 50% 0.32 Partial 15 42% 0.45 Full 17 35% 0.47 * = Subject to 10% level of significance Research Methodology: Population: Population includes observations that have been collected randomly from firms in 6 countries representing all the three types of taxation systems. Sample: It includes 50 observations, i.e. data has been collected randomly from 50 firms representing all the three taxation systems. Sources of Data Collection: The annual OECD tax database Corporate and Individual Taxes, A Worldwide Summary, Price Waterhouse Conclusions: The dividend payout policy of companies was analyzed that applies different tax systems with regard to dividends. It is found that companies located in countries that apply double taxation system (classical tax system) to have less dividend payout than do companies located in countries that try to partially avoid double taxation. In general, tax effect measured by the type of dividend tax treatment has a strong effect on the size of dividend payout.

Is Chivalry Alive Today Essay - 710 Words

Chivalry is the type of thing that would be great to have in our society but I don’t believe that it exists too much anymore in the world today. Let me break down here some of the chivalry rules compared with the actions of the people of the current world. nbsp;nbsp;nbsp;nbsp;nbsp;One rule of chivalry is that you have to honor and respect women. Back in the days of King Arthur this was carried out greatly but if you look at the lack of respect given to women today you see that this rule of chivalry no longer exists. Women’s right have made great strides in the past few decades but women are just not given the respect that they deserve. Women were put in high regards back in King Arthur’s day. Now they are not as respected as they†¦show more content†¦It is seen as very honorable to give someone who asks mercy but I don’t see too much honor shown in our world today. nbsp;nbsp;nbsp;nbsp;nbsp;Another rule of chivalry is to never do battle to obtain goods. Well this is the rule that is the most broken in our world in my opinion. I always see on the news have robberies are made and how things are stolen. Sometimes people get hurt in the process of this and that is just not right. I wish that the convicts of the world would take a lesson in what is right from the Knights of the Round Table. nbsp;nbsp;nbsp;nbsp;nbsp;Now a very debatable rule of chivalry is do not do battle without cause. Now what can be justified as proper cause. When you look at the wars that are going on today some can be justified as having proper cause. If a country is going to cause unworthy harm to many innocent victims it is alright to go in and send them a message. If a country is breaking a few trade sanctions or something of that nature then another punishment can be handed down, but not necessarily war. Now when you look at gang wars those probobly have a hidden cause that none of us see, but still that doesn’t make it right. 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Foundation of Business Law Free Essays

Charlie is going to rescind the contract. He demands return of his money and compensation for the loss of commission on several high profile sales of his business. He wants to rescind the contract because the package of software recommend by Carmine was obsolete, despite Carmine’s assurances. We will write a custom essay sample on Foundation of Business Law or any similar topic only for you Order Now This problem is concerned with the contents of the contract which is term in the contract, the misrepresentation and unconscionable conduct. Charlie will claim that Carmine verbal assurances about the condition of the package of the software which recommended by Carmine was unable to utilise the Land Titles Office’s electronic lodgement of documents. Carmine will refer to the written contract which contains a clause that there is no warranty is given about or the quality of the software. But the parol evidence will support Carmine’s contention that the contract between Charlie and Carmine which contains all the terms of the agreement. As these terms are clear and unambiguous, but there are no evidence can be admitted to change their contract. Charlie will claim that the â€Å"Contract of Sales† because that contract between he and Carmine was no in complete record. He will persist that it is an unclear and ambiguous written contract. If want applying the guidelines for the incorporation of oral terms it should show the guarantee about the software package in the term of the contract: * Timing of the statement Before signing the contract, Carmine have already assured Charlie. About that the software package was widely used by several of well-established real agencies in South Australia and was â€Å"more than adequate for a small agency which was treated as a term: Van den Esschert v Chappell (1960) WAR 114. * Where one of the parties has special skill and knowledge Carmine is a representative of Realtor Data Ltd which is a computer company that specialises in software for the real estate industry. So he has more knowledge and skill about the software than Charlie: Dick Bentley Productions v Harold Smith Motors (1965) 1 WLR 623. * Importance of the statement Before signing the contract, Carmine has already repeated a request for assurance that the software can download all the conveyancing forms necessary for electronic lodgement at the Lands Titles Office, in the statement about the software was very important in the minds of both parties: Couchman v Hill (1947) KB 554. * Reduction of the term into writing The court will ask Charlie, why he does not persist to record the term in the written Contract of Sale: Routledge v Mckay (1954) 1 All ER 855. Charlie was unaware about the package of the software because he only has a basic knowledge about the software. Charlie can claim that the promise made by Carmine: ‘he assured Charlie would meet all his agency equipment’, it is a term of a separate or collateral contract which is supported by the consideration of entering into the main contract: De Lassalle v Guildford (1901) 2 KB 215. The requirements of a collateral contract are as follow: * Promissory statement In the statement must have been promissory: JJ Savage Sons Pty Ltd v Blakney (1970) 119 CLR 435. Carmine has already assured Charlie that he would meet all his agency requirements, which have already makes a promissory to Charlie. That mean the package of software can help Charlie download all the conveyancing forms necessary for electronic lodgement at the Charlie’s office. * Intention The promissory statement must have induced the other party to enter the contract: J Evan Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976) 1 WLR 1078. Charlie had signed and entered into the contract because Carmine assured Charlie that the package of software was widely used by several companies in South Australia and it is adequate for a small agency. Besides hat, Carmine also assured that Charlie would meet all his agency requirements. So, Charlie was induced and signed the contract. * No inconsistency There must be no inconsistency between the collateral contract and the term of the main contract: Hoyts v Spencer (1919) 27 CLR 133. This is an area difficultly for Charlie because the written contract does not record the oral promissory made by Carmine. Charlie asked Carmine that is the software suitable for his compa ny use and Carmine has assured Charlie that it is suitable for his company but this is not written in the contract. Charlie has signed the contract without noticing that parol was not recorded in the written contract. If he sign the contract that means he has confirm the contract. Charlie would succeed in an action for misrepresentation. Carmine has made a statement of fact about the package of software (‘this package is widely used by several of well-established real agencies in South Australia wand was more than adequate for a small agency’) that is false and which has induced Charlie to signed and entered the contract. As a result of Carmine misrepresentation Charlie has suffered loss and damage of his company. It is fraudulent misrepresentation because Carmine knew that the package of software had already obsolete and had lie to make the sale. Charlie can rescind the contract and claim loss in the tort of deceit: Derry v Peek- Graw 12. 7. 2). Charlie can rescind the contract for unconscionable conduct. Carmine has destroyed the inequality in bargaining power that exists between him and Charlie. He is in much stronger position as a software dealer compared to Charlie who is in the weaker position as he just has basic knowledge of the software: CBA v Amadio (1983) 151 CLR 447. Conclusion * The parol evidence rule support Carmine contention that the contract between Charlie and Carmine contains all the terms of the agreement. * Charlie would argue that the contract is partly written and partly oral contract, so that is an incomplete contract. * Charlie can seek rescission of the contract and claim Carmine that his damages in tort of fraudulent misrepresentation. * Charlie can rescind the contract between him and Carmine. References Foundation of Business Law 2012 How to cite Foundation of Business Law, Essay examples

Greek Art and Sculpture free essay sample

An analysis of how nudity was a fact of ancient Greek daily life and how the artstatues reflected the Greeks? acceptance of it. The following paper examines how all Greek sports, even the Olympic events, were performed in the nude. This paper examines how nudity in and of itself wasnt the purpose of the art, but was used to best represent the images. The writer explores how women were banned from the Olympics because it was held in a sacred area. This paper also explores how the the nudity in sports gave sculptors a reason to study the human body more closely, and its proportion and movements. The writer traces back early attempts to capture the human form and examines how over time, nude sculptures became smoother and more realistic, while still adhering to the quest for the ideal. Even though sculptors eventually worked out the proportions in their work. We will write a custom essay sample on Greek Art and Sculpture or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page the Greeks were not known for experimentation with style. Once they found an image that was pleasing, they tended to stick with it. The typical male statue, the Kouros style, had a very distinct pattern that was followed: The figure stands erect and strictly frontal with his left leg advanced, his arms tense at his sides with fists clenched. Details are represented with strength and simplicity. The eyes are big and almond-shaped, the ears large and so carved as to form a kind of decorative adjunct; the essential parts of the body are clearly defined and subject to an established canon of proportions, while muscles and bones form surface patterns on the marble. The work already has those qualities of grandeur and proportion which characterize all the best Greek sculpture throughout its history. (Carver) The male form was the highest level of ideal beauty.