Date of Award

2013

Document Type

Thesis

Degree Name

Master of Science in Finance

Department

Business

First Advisor

James W. Boyd

Second Advisor

John J. Loughlin

Third Advisor

Howard J. Wall

Abstract

Through recent political history there is a common theme about taxes that is presented often: That small businesses are affected differently than larger companies. Though in political parlance small business is different than a small cap company, studying the effects of taxes on small cap companies can help discern if taxation does affect companies differently based on size. The study of the literature provides a background of critical elements such as Gross Domestic Product (GDP), interest rates and inflation, as well as factors such as fiscal policy and informational uncertainty that have an effect on stock prices. Through regression analysis that factors in the macroeconomic components mentioned above as well as long-term capital gains and dividend tax rates on the pricing of the S&P 500 and Russell 2000, contribute to evolution to an improved understanding of how different taxes affect a company's stock performance based on market capitalization.

The long-term capital gains tax rate impacts smaller cap companies to a greater extent than its impact on large cap companies. The dividend tax rate impacts large cap companies' stock prices but does not have an impact on small cap stock prices. Since small cap companies are more dependent on the flow of investor capital, long-term capital gains is a primary determinate in pricing small cap equity. There is some significance in the long-term capital gains tax rate for large cap companies as well. Conversely, the dividend tax rate only impacts large cap companies but is not significant for small cap companies.

Download

Share

COinS