Dividend Taxes and Stock Volatility

When adjusting the tax code, policy makers and economists may account for possible effects on stock prices, but not necessarily on stock volatility or on how changes in either could influence equity-compensated executives’ behavior on the job. This technical report by economist Erin E. Syron Ferris dives into complex analytics to see how the United States’ 2003 tax cut on dividends affected share prices, volatility and managerial risk aversion. Highly compensated individuals, including corporate executives, benefitted the most from the tax drop. But it may also have incentivized them to reduce price volatility, potentially harming shareholder returns. getAbstract suggests this methodical investigation to tax experts, remuneration specialists and portfolio analysts.