We examine the interaction of dividends, agency costs and taxes on SEO valuations using the 2003 dividend tax cut as a natural experiment. We find the difference in SEO announcement-day returns between dividend- and non-dividend-paying firms disappears after the tax cut evidencing dividend...

This paper shows that for a sample of firms offering SEOs non dividend paying firms experienced larger valuation gains from the 2003 dividend tax cut as compared to dividend paying firms. Using a growth option valuation framework, our findings indicate that the growth option revaluation...