RDP 9211: Dividends and Taxation: A Preliminary Investigation 6. Conclusions

Recent changes to the tax system have altered the incentive to pay dividends relative to retaining earnings. In this paper we highlighted the tax changes as they have affected different groups of investors and looked at other influences on dividend policy. Tax changes and cashflow are identified as two determinants of dividend policy in Australia. The estimates made in the paper suggest that the tax changes accounted for about a 20 per cent rise in real dividends per share between 1985/86 and 1990/91. Our preliminary investigations did not reveal any evidence that other factors, such as capital gearing, the cost of debt and cost of equity, industry grouping or size had a significant influence on dividend policy in Australia over the sample period.