Do dividend taxes affect corporate investment? (original) (raw)
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Neutral taxation of shareholder income? Corporate responses to an announced dividend tax
International Tax and Public Finance, 2009
The introduction of the 2006 Norwegian shareholder income tax was announced in advance, and it increased top marginal tax rates on individual dividend income from zero to 28 percent. We document strong timing effects on dividend payout on a large panel of non-listed corporations, with a surge of dividends prior to 2006 and a sharp drop after. Mature firms are more likely to pay dividends, and high asset growth increases the probability of retaining all earnings. Intertemporal income shifting through the timing of dividends seems to be a drain on internal equity and cause increases in the corporations' debt-equity ratios. The debt ratios drop sharply after the implementation of the reform.
The Effects of the 2003 Dividend Tax Cut on Corporate Behavior: Interpreting the Evidence
American Economic Review, 2006
The 2003 dividend tax reform has generated renewed interest in understanding the economic effects of dividend taxation. The reform introduced favorable tax treatment of individual dividend income, whereby dividends are taxed at a rate of 15 percent instead of facing the regular progressive individual income tax schedule with a top rate of 35 percent. Several recent studies have used the 2003 tax cut as a "natural experiment" to learn about the effects of dividend taxation on corporate behavior. These studies have obtained divergent, empirical results, despite using the same underlying data.
Personal Income Taxes and Corporate Investment
SSRN Electronic Journal, 2010
Existing studies report that the 2003 dividend tax cut had no effect on corporate investment. In this paper we show that dividend taxation, in theory should have, and empirically does have, important effects on corporate investment among publicly traded U.S. firms from 1977 to 2006. Cash-poor firms respond to a dividend tax cut by increasing investment. Cash-rich firms respond to a dividend tax cut by reducing investment and increasing dividends. The opposite reactions from these two types of firms significantly reduce the observed aggregate or average response of firms' investment to dividend tax changes.
Dividend Taxes and Income Shifting
SSRN Electronic Journal, 2000
This paper analyzes whether a dividend tax cut for owner-managers of closely held corporations encourages income shifting, income generation, or both. We use rich Swedish administrative micro data from 2000 to 2011 comprising detailed firm-and individual-level information. We find robust evidence of extensive income shifting across tax bases in response to the 2006 Swedish dividend tax cut. Owner-managers of closely held corporations reclassify earned income as dividend income but do not increase total income. The response is more pronounced for owner-managers with tax incentives and with easier access to income shifting through a high ownership share.
Corporate Investment and Dividend Tax Imputation
The Financial Review, 1996
The capital investmenudividend decision of the firm is analyzed under alternative assumptions about the system of dividend taxation. Relative to the classical system, imputation can yield (1) more disagreement amongst shareholders as regards the optimal investment plan, (2) less capital investment on aggregate and (3) fewer gains from mergers. Moreover, in contrast to the classical system, shareholders with high marginal tax rates can be more disadvantaged by dividend deferral than shareholders with low marginal tax rates.
National Tax Journal, 2008
We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we find that while there was a temporary increase in dividend initiations, this increase was not long-lasting. While dividend payments were increased right after the tax change, there was a larger and more pronounced increase in repurchases during the same time period. Second, we survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms.
Personal Income Tax and Corporate Investment
centerforpbbefr.rutgers.edu
Existing studies report that the 2003 dividend tax cut had no effect on corporate investment. In this paper we show that dividend taxation, in theory should have, and empirically does have, important effects on corporate investment among publicly traded U.S. firms from 1977 to 2006. Cash-poor firms respond to a dividend tax cut by increasing investment. Cash-rich firms respond to a dividend tax cut by reducing investment and increasing dividends. The opposite reactions from these two types of firms significantly reduce the observed aggregate or average response of firms' investment to dividend tax changes.
Taxation & dividend policy: new empirical evidence
Corporate Ownership and Control, 2008
The present paper takes advantage of two important changes in the Canadian taxation of capital gains in Canada to examine the interaction between taxation and corporate dividend policy. Our empirical results suggest that Canadian firms did not increase their dividend payout after the reduction of capital gains exemption in 1987; however, they did so when the remaining $100,000 capital gains exemption in 1994 was eliminated. Moreover, we find that firms with high level of control concentration tend to pay fewer dividends. Our finding suggests taxation does influence corporate dividend policy.
Mandatory dividend and corporate investment: a multi-country analysis
RAUSP Management Journal
Purpose This paper aims to empirically verify the impact of the mandatory dividend law on the investment of publicly traded companies. Design/methodology/approach The sample includes 212,595 observations from publicly traded companies from 47 different countries over the period from 2000 to 2016. The authors estimated a regression model by panel data methods to show the impact of the mandatory dividend on firm’s investment, more specifically in their sensitivities of investment to cash flow and to growth opportunities. In addition, the average treatment effect on the treated was estimated through sample matching. Findings The results indicate that the mandatory dividend have a direct and indirect impact on corporate investment. Originality/value Legislators and economic agents can use the results of the present research to evaluate the continuity or implementation of this legal mechanism (mandatory dividend) to evaluate economic moments favorable to its use or to create different le...