Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts
Review of Financial Studies, Forthcoming
56 Pages Posted: 1 Nov 2014 Last revised: 28 Jan 2017
Date Written: January 27, 2017
Using proprietary data on the entire spectrum of ownership-structure and exact tax-status of investors and firms we examine how dividend taxation affects payout. Utilizing an exogenous shock to dividend taxation, we show that absent any frictions, dividend taxation has a large impact on payout. As agency issues and shareholder conflicts increase, owners’ tax-preferences have significantly smaller impact on payout. We identify three mechanisms that reduce the dividend-tax sensitivity: Coordination among owners, heterogeneity in tax preferences, and diverging objectives between managers and owners. Altogether, taxation has a first-order impact on payout, but agency issues and shareholder conflicts mute its impact substantially.
Keywords: Payout Policy, Dividend Taxes, Agency Costs, Ownership Structure
JEL Classification: G30, G35, H24, H25
Suggested Citation: Suggested Citation