| The purpose of this study was to replicate and expand the study by Howton and Howton that examined the change in dividend policies affected by the change in dividend taxation from the Jobs and Growth Tax Relief Reconciliation Act of 2003. Quantitative research techniques such as matched pair t Test and proxies for the level of agency, asymmetric information, and investment opportunities were used in testing the percentage change in dividends paid, dividend yield, and dividend payout ratio. The research tested the hypotheses that higher dividend payouts would result from the 2003 dividend tax cut, that the probability of increasing dividends would be directly related to the agency costs of free cash flow, and that the probability of increasing dividends would be directly related to a firm's signaling value through a dividend increase. The results of the study indicated that dividend payouts increased significantly for the periods 2003--2006 after enactment of the change in tax law. There was no discernable difference in dividend policy in response to the tax rates on dividends using the variable of dividend yield. Furthermore, it appeared that the probability of increasing dividends was directly related to the firm's potential agency costs of free cash flow. Also, the history of previous performance variables of dividend yield and dividend change appears to be a good indicator of future performance. A future study of dividend payout policy caused by 2008--2009 weaker performance of operating income and less related cash could show the impact of corporate behavior to pay sustained dividends. Also, a study of dividend policy could be done measuring the 2009 proposed increased marginal tax impact on dividend payouts. |
