Shareholder Illiquidity and Firm Behavior: Financial and Real Effects of the Personal Wealth Tax in Private Firms

55 Pages Posted: 29 Oct 2019 Last revised: 26 May 2020

See all articles by Janis Berzins

Janis Berzins

BI Norwegian Business School

Øyvind Bøhren

BI Norwegian Business School; European Corporate Governance Institute (ECGI)

Bogdan Stacescu

BI Norwegian Business School

Date Written: May 17, 2020

Abstract

We examine how negative liquidity shocks to households propagate to firms. We show that higher taxes on the home of private firms’ controlling shareholders are associated with higher dividend and salary payments from firms to shareholders and with lower cash holdings, investments, sales, and performance in firms. A one percentage-point increase in the shareholder’s wealth-tax-to-liquid-assets ratio is on average followed by a half percentage-point increase in the dividends-to-earnings ratio, a one third percentage-point decrease in investment, and a half percentage-point decrease in sales growth and profitability. These findings suggest that shareholder illiquidity has causal effects on firm behavior.

Keywords: household finance, corporate finance, illiquidity, taxes, wealth tax, dividends, cash holdings, investment, growth, performance

JEL Classification: G32, G35

Suggested Citation

Berzins, Janis and Bøhren, Øyvind and Stacescu, Bogdan, Shareholder Illiquidity and Firm Behavior: Financial and Real Effects of the Personal Wealth Tax in Private Firms (May 17, 2020). European Corporate Governance Institute – Finance Working Paper No. 646/2019; Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC. Available at SSRN: https://ssrn.com/abstract=3475412 or http://dx.doi.org/10.2139/ssrn.3475412

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)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Bogdan Stacescu

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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