American Taxation Association

JATA abstracts - Fall 2007

JATA - Fall 2007

Volume 29, No. 2

Taxes and Valuation: Evidence from Dividend Change Announcements
Oliver Zhen Li

Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004
Mitchell Oler, Terry Shevlin and Ryan Wilson

An Experiential Investigation of Tax Professionals' Ethical Environments
Donna D. Bobek and Robin R. Radtke


Taxes and Valuation: Evidence from Dividend Change Announcements

Oliver Zhen Li

Abstract

Under the U.S. tax system, dividends are historically taxed at a higher rate than capital gains and thus incur a tax-related penalty. I provide evidence that the dividend tax penalty partially offsets the positive signaling and agency cost effects of dividends for fully taxable individual investors. The level of institutional ownership and the frequency of institutional trading, which proxy for the likelihood that the marginal investor is not a fully taxable individual, mitigate the negative dividend tax effect. My results support the notion that taxes impact equity valuation. I contribute to the literature by isolating dividends' negative tax effect from their positive signaling and agency cost effects. Top


Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004

Mitchell Oler, Terry Shevlin and Ryan Wilson

Abstract

The American Jobs Creation Act of 2004 was signed into law on October 22, 2004. One of the most significant aspects of this legislation is a temporary tax holiday for dividend repatriations from foreign subsidiaries. U.S. multinational corporations may elect during a one-year window to deduct 85 percent of extraordinary cash dividends received from foreign subsidiaries. In this study, we model the impact that this legislation has on a firm's decision to either repatriate or reinvest foreign earnings from abroad. We then examine investors' assessment of how U.S. multinational corporations will respond to the temporary tax holiday. Our results indicate that investors repriced the tax liability consistent with investors anticipating that U.S. multinational corporations will repatriate a significant portion of their permanently reinvested foreign earnings during the tax holiday.  Top


An Experiential Investigation of Tax Professionals' Ethical Environments

Donna D. Bobek and Robin R. Radtke

Abstract

This paper investigates the ethical environment in which tax professionals operate by eliciting practicing tax professionals' personal experiences with ethical dilemmas in tax engagements. Since organizational culture can play a role in creating an environment where ethical decision making is encouraged (Arnold et al. 1999, 2000; Booth and Schulz 2004), we expected that tax professionals' self-identified ethical dilemmas would be related to their assessments of the ethical environments of their firms. Based on 146 responses from practicing tax professionals, most participants rated their ethical environment as very strong. Additionally, the 84 participants who did not describe a self-identified ethical dilemma rated the ethical environment of their firms significantly stronger than the 62 who reported a dilemma. Implications of this study include an emphasis on in-house ethics training and explicitly including rewards and sanctions regarding ethical behavior in performance evaluation systems.  Top


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