Dividends, Taxes, and Signaling: Evidence from Germany




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    • Amihud is from the Stern School of Business, New York University, and Murgia is from the University of Pavia. We thank Günter Franke and Johann Heinr. v. Stein for greatly helping us understand the German system, and Fischer Black, Edmund Cohen, Deborah Goldstein, Kose John, Avner Kalay and Ameziane Lasfer, as well as the Editor and particularly an anonymous referee for valuable comments and suggestions. We are grateful to the Institute fur Entscheidungstheorie und Unternehmensforschung–Universitat Karlsruhe, the Institute fur Betriebswirtschaftslehre der Christian-Albrechts-Universitat zu Kiel and Deutsche Bank Research GmbH for supplying data. Amihud's work was supported by a grant from Yamaichi Securities, and Murgia's work was supported by a grant from the Consiglio Nazionale delle Ricerche (94.02110.CT10).


The higher taxation of dividends in the United States gave rise to theories that explain why companies pay dividends. Tax-based signaling models propose that the higher tax on dividends is a necessary condition to make them informative about companies' values. In Germany, where dividends are not tax-disadvantaged and in fact are taxed lower for most investor classes, these models predict that dividends are not informative. However, we find that the stock price reaction to dividend news in Germany is similar to that found in the United States. This suggests other reasons, beyond taxation, that make dividends informative.