Did the 2003 Tax Act reduce the cost of equity capital?

Dan Dhaliwal, Linda Krull, Oliver Zhen Li

Research output: Contribution to journalArticlepeer-review

59 Scopus citations


The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced shareholder-level taxes on equity income. If shareholder-level taxation is a component of cost of equity capital, then the cost of equity capital should decrease after the Tax Act. We find that the cost of equity capital decreases by 1.02% and that the decline is smaller for firms largely held by institutional investors to whom the tax rate reduction does not apply. These results suggest that the Tax Act lowered the cost of equity capital and add further evidence to the question of whether taxes impact valuation.

Original languageEnglish (US)
Pages (from-to)121-150
Number of pages30
JournalJournal of Accounting and Economics
Issue number1
StatePublished - Mar 2007


  • Capital gain taxes
  • Dividend taxes
  • Implied cost of capital
  • Institutional ownership

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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