Strategies and Dividend Imputation: The Effect of Foreign and Domestic Ownership on Average Effective Tax Rates

Posted: 26 Mar 2002

See all articles by Brett R. Wilkinson

Brett R. Wilkinson

Baylor University - Department of Accounting & Business Law

Steven F. Cahan

University of Auckland Business School

Geoff Jones

Massey University - School of Accountancy

Abstract

This study examines how dividend imputation affects the incentives of New Zealand firms to minimize tax. By effectively eliminating double taxation on company income, imputation reduces firms' incentives to engage in costly tax minimization strategies. Before September 1993, resident and nonresident shareholders were treated differently under New Zealand's imputation system. Because imputation credits cannot be passed to shareholders unless dividends are paid, we expect firms to pursue different tax paying strategies depending on their level of foreign ownership and their dividend payout ratios. After September 1993 when imputation credits were extended to nonresident portfolio shareholders, we expect that firms with high foreign ownership and high dividend payouts would have less incentive to minimize tax. Our results provide some support for these expectations.

JEL Classification: M41, H20, G35

Suggested Citation

Wilkinson, Brett R. and Cahan, Steven F. and Jones, Geoff, Strategies and Dividend Imputation: The Effect of Foreign and Domestic Ownership on Average Effective Tax Rates. Available at SSRN: https://ssrn.com/abstract=298091

Brett R. Wilkinson

Baylor University - Department of Accounting & Business Law ( email )

Waco, TX 76798
United States

Steven F. Cahan (Contact Author)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Geoff Jones

Massey University - School of Accountancy ( email )

New Zealand

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