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Wong, W.Y., Kamarun Nisham Taufil Mohd, & Nur Adiana Hiau Abdullah. (2016).

The wealth
effects of dividend tax cuts: Evidence from the Malaysian REITs market. Paper presented
at the 22nd Annual Pacific-Rim Real Estate Society Conference, Queensland, Australia.
Retrieved from http://www.prres.net/papers/Wong_REIT_Dividend_Tax.pdf

This research aimed to examine how the announcement of dividend tax cuts in 3 events (Event 1,
Event 2 and Event 3) has influenced the performance of REITs in Malaysia. There were three
existing different views which related to the effects of dividend tax cuts to the value of the firms.
Tax irrelevance view claims that dividend tax cuts does not affect the firm values when the
firms are tax-free entity. Under the new view, Auerbach (1979), Bradford (1981) and King
(1977) noted that dividend tax cut will influence the firms share price positively but has no
impact on firm investment policy. Finally the old view states that the dividend cut will
influence the firms share price positively in short run. Using event study methodology, Wong,
Kamarun Nisham Taufil Mohd, & Nur Adiana Hiau Abdullah (2016) found that increasing in
cumulative average abnormal returns (CAARs) for the sample REITs in Event 1 and Event 2
resulted in a positive stock reaction after the dividend tax cut announcements. The extension of
tax cut period for another five years during Event 3 did not receive a positive market response as
in Event 1 and Event 2. This result is consistent with the research of Auerbach and Hassett
(2005), where changing in dividend tax would have significant impact to the stock price. Taken
the result together indicates that it is consistence with the old view and new view of dividend
taxation. Under the result of OLS regressions of cumulative abnormal returns (CARs), Wong et
al. (2016) found that the dividend payout increases along with the announcement of dividend tax
reduction in Event 1 and Event 2. This results consistent with the research of Chetty and Saez

(2005) and Wang and Guo (2011), where dividend cut will lead to an increasing in dividend
payout. The result is not significant in Event 3 could possible due to it is merely an
announcement of extension of dividend tax until 2016.

Reference
Auerbach, A.J., & K.A. Hassett. (2005). The 2003 dividend tax cuts and the value of the firm: An
event study. NBER Working Paper 11449, June.
Chetty, R., & E. Saez. (2004). Dividend taxes and corporate behavior: Evidence from the 2003
dividend tax cut. NBER Working Paper 10841, October.
Wang, C.F., and Y. Guo. (2011). Do dividend tax cuts lead firms to increase dividends: Evidence
from China. China Journal of Accounting Research, 4, 197-209.