Tax differential theory, Finance Basics

Tax Differential Theory

Advanced via Lichtenberger and Ramaswamy in 1979.They argued that tax rate on dividends is higher quite than tax rate on capital gains. Thus, a firm that pays high dividends has lower value as shareholders pay more tax on dividends.A dividend decision is relevant and lowers such dividend the higher such the value of the firm and vice versa.


In US, dividends attract a withholding tax of 5 percent such is final and capital gains are tax exempt.

Posted Date: 1/31/2013 2:36:40 AM | Location : United States

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