Unpacking the Impact of the 2022 Dividend Tax on Danish Dividend Investment Funds: An Empirical Analysis of the Danish Stock Market

Abstrakt

Evidence on the exact impact of dividend taxation on investment decisions is still an unsettled debate in financial literature. This thesis aims to study the effect of a new dividend tax legislation introduced in Denmark on January 1, 2022, imposing a withholding tax of 15% on Danish stock-based investment funds with minimum taxation, hereafter dividend investment funds, investing in Danish companies. The paper utilizes a data set containing dividend- and accumulating investment funds investing solely in Danish corporations to examine how the new dividend tax rule affects investors’ investment choices through price and quantity effects. With no precise indication of a quantity effect, the study will focus on the potential price effect by examining abnormal returns, using the event study methodology.

The analysis concerns the announcement and implementation of the new regulation for the affected dividend investment funds and the unaffected accumulating investment funds as a benchmark. With this approach, we will in this paper have a unique opportunity to measure the impact of dividend taxation, as the impact of the taxation is only relevant for one of these two otherwise identical investment funds, with the main distinguishing factor being dividend distribution. The results from the event study analysis indicate a significant direct price effect on dividend investment funds and an indirect price effect on accumulating investment funds through significant abnormal returns in the event window. The tax rule has impacted unanticipated investment choices concerning the dividend investment funds on the event dates and with ambiguous investment choices in the delayed market response. On the other hand, the investment choices related to accumulating investment funds align more closely with the presumptions. These findings support the literature on the “old view” theory of dividend taxation rather than the “new view”. Moreover, this thesis sheds new light on the impact of dividend taxation on investment decisions and contributes to the ongoing debate in the literature.