Business Commons^™

Capital Gains, Dividends, And Taxes: Market Reactions To Tax Changes, Mark Foster, Larry White, Michael T. Young

All Faculty Scholarship for the College of Business

The purpose of this study is to examine the effect of a capital gains tax reduction on the stock price of firms that have not historically paid a dividend. If markets are semi-strong-form efficient, one would expect that the market price would have already adjusted prior to the day the announcement was made, assuming no new information was included in the announcement. If markets have not already incorporated the information, there would be a possibility for abnormal returns from investing in the stocks on the date of the announcement. This paper studies the returns from companies prior to, and subsequent …