Digitized Honors Theses (2002-2017)

Date of Award

12-2004

Document Type

Thesis

Degree Name

BS

Faculty Mentor

Ross Dickens, Ph.D.

Advisor(s)

James Cannon, Ph.D., Marjorie Icenogle, Ph.D.

Abstract

The Jobs and Growth Tax Relief Reconciliation Act of 2003 decreased the individual tax rate on dividend income from approximately 35% to 15%. This study examines how this tax reform affects dividend policy, by monitoring changes in payout ratio. The corresponding change in market capitalization is an added variable to measure if the change in dividend policy affects firm value. The Standard and Poor's 500 (S&P 500) is the market proxy. This research separates firms by dividend paying history prior to the tax reform act (dividend paying and non-dividend paying). Each subgroup undergoes statistical tests for changes in payout ratio and market capitalization after the tax reform act for evidence to support or refute dividend policy's affect on firm value. The two sample t-tests lack significant results to conclude the tax reform act of 2003 had any effect on dividend payout. Likewise, the t-tests fail to support any significant change in firm value. The Wilcoxon Signed-Rank Test gives opposite results depending on the interpretation. The evidence from this study suggests the Bush administration's Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) does not affect dividend policy, nor influence firm value.

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