D estimated using the nominal growth rate and the

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d Estimated using the nominal growth rate and the inflation rate. e As measured by consumer prices.
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Emerging Market Firms 375 TABLE 2. Financial System Classification. Financial Orientation Financial Development Bank Market Developed Jordan South Korea, Malaysia Underdeveloped Pakistan, Zimbabwe, India, Turkey Thailand measures of capital market development and strong enforcement of creditor rights, Turkey is classified as underdeveloped and bank oriented. Thailand is classified as underdeveloped and market orientated because even though it scores poorly on equity market indicators, it has strong enforcement of shareholder rights. Ownership of public companies is more highly concentrated in emerging markets than in U.S. markets (and most other developed economies). According to the concentration measures reported in La Porta et al. (1998), the three largest shareholders of a given company owned an average of 20% of the ten largest U.S. publicly held firms. The corresponding numbers for the emerging market sample are: India, 40%; Malaysia, 54%; Thailand, 47%; Zimbabwe, 55%; Pakistan, 37%; and Turkey, 59%. The only country that seems to have ownership concentration similar to the United States is Korea (23%). Tax rate data for these countries suggest that in six of the eight countries the corporate tax rate is less than the highest personal tax rate. Furthermore, the ratio of after-tax dividend income to after-tax capital gains income, assuming accrual taxation, is less than or equal to 1.0 for every country (including the United States) except Thailand. When the deferral advantage to capital gains is factored in, it seems that in most of these countries, even possibly in Thailand, there are incentives similar to those in the United States to avoid paying dividends for tax reasons. Consequently, we do not expect tax distortions to play a significant role in differentiating the dividend policies of these emerging market firms from their U.S. counterparts. Both tax and institutional factors indicate high costs are attached to paying dividends for firms in all eight emerging market countries relative to the United States. This is due to the extra taxes imposed on investors (except in Thailand) and the greater difficulty in replacing equity lost through dividend payments with new issues. These difficulties appear to be most acute in bank-oriented countries and less severe in Malaysia and Korea, particularly toward the end of the period. Therefore, within our eight-country sample, we expect firms operating in the market-oriented economies of Korea and Malaysia to pursue dividend policies most similar to U.S. firms. Conversely, we expect the dividend policies of firms in the bank-oriented systems of Turkey, Zimbabwe, Pakistan, and India to be the least similar to those of U.S. firms, with firms in Jordan and Thailand falling into a gray zone ( other ).
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