Edgerton, J. (2010).

Effects of the 2003 dividend tax cut: Evidence from real estate investment
trusts? Retrieved October 7, 2016 from
https://www.federalreserve.gov/pubs/feds/2010/201034/201034pap.pdf

The article study the dividend payout behavior of majority U.S. firms and REITs from the event
of dividend tax cut in 2003. The author of this article, Edgerton (2010) found that the 2013
dividend tax cut policy has little impact on the dividend payouts immediately following the
announcement of tax cut, which is contrary to the result of previous studies claim that the effects
appeared immediately with the following reasons. First, according to Chetty and Saez (2005), the
percentage of firms dividend payment decline from 1998 to 2012 and increased steadily for two
consecutive years to 2015. Edgerton (2010) criticked that market participants are too early react
to the announcement of dividend tax deduction appeared in 2013. Second, the dividend paying
pattern of non-REITs firm start increase in 2001, again it is too early to have been caused by
2013 tax cut. REITs dividend paying behavior move quite similar to the non-REITs even though
REIT dividend not qualify for the tax cut. Edgerton (2010) also found that the increase in
dividend payouts is caused by the increase in corporate earnings. From the result, the ratio of
dividends to earnings fell immediately after the announcement of tax cut but increase in 2014,
enough to proof that the corporate earnings is the cause of increase in dividend payouts. Next,
Chetty and Saez (2005) and Brown, Liang, and Weisbenner (2007) also pointed out evidence
related to firms that paid dividends after the tax cut. Edgerton (2010) found out that the dividend
initiations already started in the early of 2002, while the tax cut announced in 2013. Edgerton
(2010) also pointed out the share repurchased increase more rapidly than did dividend payouts
following the years of tax cut in the event of cash pay out to investors. In short, based on the

findings of Edgerton (2010), the 2003 dividend tax cut is not the main key driven that caused the
increasing in dividend payout.

Reference
Raj Chetty and Emmanuel Saez. (2005). Dividend taxes and corporate behavior: Evidence from
the 2003 dividend tax cut. Quarterly Journal of Economics, 120(3):791833, 2005.
Raj Chetty and Emmanuel Saez. (2007). An agency theory of dividend taxation. NBER Working
Paper Series, (13538), October 2007.
Jeffrey R. Brown, Nellie Liang, and Scott Weisbenner. Executive financial incentives and payout
policy: Firm responses to the 2003 dividend tax cut. Journal of Finance, 62(4):
19351965, 2007.