An Empirical Study On Tax Effect Of Dividend Policy In China A Share Stock Market

Dividend Policy, one of three important financial policies (investment, finance, dividend allocation) of publicly listed companies, is always a hot focus in academic research field about economics and finance."Dividend Secret"has been a hot dispute among the world for decades. This paper starts from a general statement about the theory and research of dividends and related knowledge. The paper also indicated the current situation and development of dividends policy in China, and offered a deep analysis about the external effects of dividend policy, such as market and tax regulation.Based on above analysis, the article focuses on the difference of tax effect among the 3 periods which are divided by two tax revolution. The paper uses Brennan's after-tax CAPM model to analyze the data from 1990 to 2007 in China Share A Stock market. After analyzing the effect of market trend, paper takes market factor into account to further improve the after-tax CAPM model. The result demonstrates: (1) After the income tax was imposed against the cash dividend in 1990 and stock dividend in 1998, the tax effects do exist in both of them, which demonstrates that tax adjustment does affect the dividend policy. (2) The regression result is improved, when the market return rate is included. (3) The coefficient of dividend returns ( c0 ) doesn't equal to its tax rate. This indicates that the expected return rate is affected by other factors besides tax.The paper also points out the difference between cash dividends and stock dividends. The coefficient ( c0 ) of stock dividend samples is lower than zero, which indicates that the investors who receive stock dividend gain lower return rate, and dislike stock dividend when tax is imposed against stock dividend.Futher more, from the empirical study of ex-dividend day stock price behavior model, the article concludes that stock prices of companies delivering stock dividends drop more than dividend amount at the ex-day, while stock prices of companies delivering cash dividend drop less than dividend amount.Finally, this paper refers the dividend tax regulations in many main markets such as U.S and Japan, and makes the suggestions for the individual dividend tax policy.