Consistent with the tax clientele
theory, we find that for the overall sample period, ex-dividend price behavior is systematically related to how capital gains and dividends are taxed.
are the tax clientele
for the tax-exempt bonds; in other words, they are
Almost all international studies detect an ex-day price drop of less than one but, as in the US, evidence is mixed as to the existence of a tax clientele
Thus, both the tax clientele
and the tax-timing option imply that the ratio of taxable and tax-exempt yields would not equal the tax rate of the marginal investor.
Under the Scholes and Wolfson (1992) framework, investors who do not pay the AMT would be expected to form a tax clientele
for investing in AMT.
(2) Prior studies investigate whether the yield spread for municipal bonds reflects the tax rate for an individual or corporate marginal investor (Poterba 1986; Fortune 1988; Mankiw and Poterba 1996) and whether there is an institutional tax clientele
for dividend-paying stocks (Dhaliwal et al.
15 Equivalently, the tax clientele
effect implies a marginal buyer with a marginal tax rate of less than 29.9 percent (35 - 5.1).
Because it is conditioned on the tax clientele
of dividend-paying stocks changing with the dividend tax cut, we call this case the "dynamic tax-clientele hypothesis."
This study also extends the literature on tax clienteles
, documenting one example where the price of an investment asset is determined by a corporate tax clientele
with marginal tax rates significantly below the maximum statutory tax rate.
Thus, unless the before-tax returns on common stocks increase with dividend magnitude, taxable investors with [t.sub.div] [greater than or equal to] gt are the tax clientele
for lower-dividend-paying stocks.
Ross, 1986, "Tax Clientele
and Asset Pricing," Journal of Finance (July), 751-763.