Dividend Taxation and Corporate Governance

Journal of Economic Perspectives, Vol. 19, No. 3, 2005

University of Alberta School of Business Research Paper No. 2013-247

Posted: 27 May 2013 Last revised: 4 Jun 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: September 10, 2004

Abstract

In 2003, the United States enacted a tax reform that reduced, but did not eliminate, individual dividend income taxes. Cutting the dividend tax deprives corporate insiders of a justification for retaining earnings to build unprofitable corporate empires. But not eliminating it entirely preserves an advantage for institutional investors, who can put pressure on underperforming managers. This balance is broadly appropriate in the United States — whose large companies are freestanding and widely held. In addition, preserving the existing tax on intercorporate dividends, in place since the Roosevelt era, discourages the pyramidal corporate groups commonplace in other countries, and preserves America's large corporate sector of free-standing widely held firms.

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin, Dividend Taxation and Corporate Governance (September 10, 2004). Journal of Economic Perspectives, Vol. 19, No. 3, 2005; University of Alberta School of Business Research Paper No. 2013-247. Available at SSRN: https://ssrn.com/abstract=2269978

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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