Dividends and Taxes: The Moderating Role of Agency Conflicts

66 Pages Posted: 26 May 2017 Last revised: 18 Jan 2019

See all articles by Janis Berzins

Janis Berzins

BI Norwegian Business School

Øyvind Bøhren

BI Norwegian Business School

Bogdan Stacescu

BI Norwegian Business School

Date Written: December 15, 2018

Abstract

We find that potential conflicts between majority and minority shareholders strongly influence how dividends respond to taxes. Examining the population of firms with proprietary microdata on all family relationships and a million individual tax returns, we utilize a large and clean regulatory shock in Norway that increases the dividend tax rate for all individuals from 0% to 28%. We find that dividends drop less the higher the potential shareholder conflict. The average payout ratio falls
by 30 percentage points when the conflict potential is low, but by only 18 when high. These lower dividends cannot be explained by higher salaries to shareholders or diverse liquidity needs. We also observe a strong increase in indirect ownership of high-conflict firms through tax-exempt holding companies and suggest policy implications for intercorporate dividend taxation.

Keywords: Dividends; Taxes; Agency Costs; Shareholder Conflicts; Indirect Ownership

JEL Classification: G32; G35

Suggested Citation

Berzins, Janis and Bøhren, Øyvind and Stacescu, Bogdan, Dividends and Taxes: The Moderating Role of Agency Conflicts (December 15, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 540/2017. Available at SSRN: https://ssrn.com/abstract=2973551 or http://dx.doi.org/10.2139/ssrn.2973551

Janis Berzins (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Øyvind Bøhren

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
46410503 (Phone)

Bogdan Stacescu

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Register to save articles to
your library

Register

Paper statistics

Downloads
61
rank
341,505
Abstract Views
384
PlumX Metrics