Foreign portfolio investment and shareholder dividend taxes

Dan Amiram, Mary Margaret Frank

Research output: Contribution to journalArticlepeer-review


We investigate the effects of dividend taxes on foreign equity portfolio holdings. Based on the extension of an equilibrium model with risky assets to an international setting, we predict that a change in the tax rate on dividends of a country's domestic investors is positively related to changes in foreign investors' portfolio holdings in that country. The evidence from two research settings, which exploit changes in the national tax policies of different countries, supports this prediction. More generally, the model predicts that a foreign investor's equilibrium portfolio holdings in a country are negatively related to the dividend tax rate that she directly pays on assets in that country and positively related to the weighted-average dividend tax rate of worldwide investors in that country. Results from analyses using panel data provide empirical support for these predictions.

Original languageEnglish
Pages (from-to)717-740
Number of pages24
JournalAccounting Review
Issue number3
StatePublished - May 2016
Externally publishedYes


  • Foreign portfolio investment
  • Implicit taxes
  • International
  • Portfolio theory
  • Shareholder dividend taxes
  • Tax capitalization
  • Withholding taxes


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