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Imputation Credits and Equity Returns


  • We thank two anonymous referees for their comments. The views expressed herein do not necessarily reflect the views of NERA Economic Consulting.

Paul Lajbcygier, Department of Accounting and Finance, Building 11E, Monash University, Wellington Road, Clayton, VIC 3168, Australia. Email:


The provision of imputation tax credits can in principle lower the returns that investors require on equity. Whether in practice imputation credits lower the returns that investors require depends in large part on the impact of foreign investors on equity prices. This is because foreign investors in general cannot use the credits that domestic equities provide. We use a range of pricing models and monthly data from July 1987 to December 2009 to test whether, holding risk constant, equity returns are related to credit yields. We find no evidence that the provision of imputation tax credits lowers the returns investors require on equity.

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