INCOME TAXES AND CAPITAL ASSET PRICING THEORY: SOME EMPIRICAL EVIDENCE.

Persistent Link:
http://hdl.handle.net/10150/187910
Title:
INCOME TAXES AND CAPITAL ASSET PRICING THEORY: SOME EMPIRICAL EVIDENCE.
Author:
LEGGETT, DAVID NEAL.
Issue Date:
1985
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
Capital asset pricing theory assumes a no-tax, after-tax efficiency equivalence; ie., that the efficient information produced in a no-tax analysis is equivalent to that which is produced in an after-tax analysis. However, if the effect of income taxes is not systematic throughout the market, the useful application of the theory may be impaired by this assumption. This research seeks to determine the effect of income tax imposition on the risk-return expectations or individual investors. If the effect of income tax imposition is to produce non-homogeneous after-tax investor risk-return expectations, then the efficiency equivalence hypothesis must be rejected. This efficiency equivalency hypothesis is evaluated by testing two alternative hypotheses, (1) the systematic riskiness of any individual security, both with and without adjustment for the imposition of income tax, is equivalent, and (2) the no-tax and after-tax expected risk-return rank order of each individual security is the same. An after-tax capital asset pricing model is derived. This model is based upon the premise that the current income tax laws, which require investors to share with the taxing government the uncertain returns from risky assets, allow investors to reduce the riskiness of those returns. The returns on investment assets are derived from both capital gains and from ordinary income distributions. However, the tax treatment of capital gains (losses) and ordinary income (dividends/interest) is not the same. This results in an unsystematic effect on the risks and returns of investments, thus, the income tax effect is not likely to be homogeneous as an efficiency equivalence hypothesis would imply. The analysis focuses on the expected risk-return equivalencies for 465 firms, using ex-post data over a 10 year period. The findings of this study imply that income tax effects on the market are not homogeneous. Income tax differentials are apparent in both the observed beta terms and the risk-return rank-ordering of the securities.
Type:
text; Dissertation-Reproduction (electronic)
Keywords:
Capital assets pricing model.; Capital gains tax.; Investments -- Taxation.
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Finance and Real Estate; Graduate College
Degree Grantor:
University of Arizona

Full metadata record

DC FieldValue Language
dc.language.isoenen_US
dc.titleINCOME TAXES AND CAPITAL ASSET PRICING THEORY: SOME EMPIRICAL EVIDENCE.en_US
dc.creatorLEGGETT, DAVID NEAL.en_US
dc.contributor.authorLEGGETT, DAVID NEAL.en_US
dc.date.issued1985en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractCapital asset pricing theory assumes a no-tax, after-tax efficiency equivalence; ie., that the efficient information produced in a no-tax analysis is equivalent to that which is produced in an after-tax analysis. However, if the effect of income taxes is not systematic throughout the market, the useful application of the theory may be impaired by this assumption. This research seeks to determine the effect of income tax imposition on the risk-return expectations or individual investors. If the effect of income tax imposition is to produce non-homogeneous after-tax investor risk-return expectations, then the efficiency equivalence hypothesis must be rejected. This efficiency equivalency hypothesis is evaluated by testing two alternative hypotheses, (1) the systematic riskiness of any individual security, both with and without adjustment for the imposition of income tax, is equivalent, and (2) the no-tax and after-tax expected risk-return rank order of each individual security is the same. An after-tax capital asset pricing model is derived. This model is based upon the premise that the current income tax laws, which require investors to share with the taxing government the uncertain returns from risky assets, allow investors to reduce the riskiness of those returns. The returns on investment assets are derived from both capital gains and from ordinary income distributions. However, the tax treatment of capital gains (losses) and ordinary income (dividends/interest) is not the same. This results in an unsystematic effect on the risks and returns of investments, thus, the income tax effect is not likely to be homogeneous as an efficiency equivalence hypothesis would imply. The analysis focuses on the expected risk-return equivalencies for 465 firms, using ex-post data over a 10 year period. The findings of this study imply that income tax effects on the market are not homogeneous. Income tax differentials are apparent in both the observed beta terms and the risk-return rank-ordering of the securities.en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.subjectCapital assets pricing model.en_US
dc.subjectCapital gains tax.en_US
dc.subjectInvestments -- Taxation.en_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineFinance and Real Estateen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.committeememberBleck, Erichen_US
dc.contributor.committeememberEmery, Johnen_US
dc.contributor.committeememberWert, Jamesen_US
dc.identifier.proquest8511704en_US
dc.identifier.oclc693601546en_US
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