The Existence of Tax Clienteles: An Australian Setting

There is little empirical evidence of company tax driving firm value in the finance literature though a change to Australian dividend imputation tax law in 1997 suggests the existence of dividend taxation induced tax clienteles. Recent changes to the regulation of the Australian dividend imputation system appears to have created two tax based shareholder clienteles determined by whether the shareholder is an Australian resident for tax purposes. A unique feature of this study is the focus on the value of franking credit balances, which have accumulated over time for many dividend paying Australian corporations. Analysis, using a sample of Australian listed companies over the period 2001 through 2006 (3071 firm-year observations), suggests that while Australian resident shareholders value franking credit balances, non-resident shareholders seem to attach little value to them and this has implications both for firm valuation.