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Payout Taxes and the Allocation of Investment


Bo Becker


Harvard Business School; National Bureau of Economic Research (NBER)

Marcus Jacob


WHU - Otto Beisheim School of Management

Martin Jacob


WHU - Otto Beisheim School of Management
April 3, 2012

Harvard Business School Finance Working Paper No. 11-040
AFA 2012 Chicago Meetings Paper

Abstract:     
When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). If there are no perfect substitutes for equity finance, payout taxes may therefore have an effect on the investment of firms. High taxes will favor investment by firms who can finance internally. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is “locked in” in profitable firms when payout is heavily taxed. Thus, apart from any level effects, payout taxes change the allocation of capital.

Number of Pages in PDF File: 60

JEL Classification: G30, G31, H25

working papers series


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Date posted: October 17, 2010 ; Last revised: April 4, 2012

Suggested Citation

Becker, Bo, Jacob, Marcus and Jacob, Martin, Payout Taxes and the Allocation of Investment (April 3, 2012). Harvard Business School Finance Working Paper No. 11-040; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1692742 or http://dx.doi.org/10.2139/ssrn.1692742

Contact Information

Bo Becker (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facEmId=bbecker@hbs.edu
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org/authors/bo_becker
Marcus Jacob
WHU - Otto Beisheim School of Management ( email )
Burgplatz 2
Vallendar, 56179
Germany
Martin Jacob
WHU - Otto Beisheim School of Management ( email )
Burgplatz 2
D-56179 Vallendar, 56179
Germany
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