R&D Investment and Pre-Committed Payouts: An Empirical Analysis Using the R&D Investment-Incentivizing Tax Reform as a Natural Experiment

44 Pages Posted: 24 Jun 2020

See all articles by Kenichi Nagasawa

Kenichi Nagasawa

University of Tsukuba

Akitoshi Ito

Hitotsubashi University Business School

Date Written: May 31, 2020

Abstract

This paper examines the pre-committed payout hypothesis that firms which increase R&D investment also increase payouts in order to mitigate the information asymmetry and agency problems. We use the R&D tax reform which came into effect in 2007 in Japan as a natural experiment. We find that increases in R&D investments lead to increased payouts, as predicted by the pre-committed payout hypothesis. Furthermore, we find that the positive relationship between R&D investment and payouts is affected by the degree of corporate governance and agency problems measured by managerial ownership, the status of net debt and the adoption of anti-takeover provisions.

Keywords: Pre-commitment, R&D Investment, Payout Policies, Agency Problems, Difference-in-Differences

JEL Classification: G3, G35

Suggested Citation

Nagasawa, Kenichi and Ito, Akitoshi, R&D Investment and Pre-Committed Payouts: An Empirical Analysis Using the R&D Investment-Incentivizing Tax Reform as a Natural Experiment (May 31, 2020). Available at SSRN: https://ssrn.com/abstract=3615015 or http://dx.doi.org/10.2139/ssrn.3615015

Kenichi Nagasawa

University of Tsukuba ( email )

Tsukuba University , Ibaraki Ken
Tsukuba, Ibaraki 305-8573, Ibaraki 3050006
Japan

Akitoshi Ito (Contact Author)

Hitotsubashi University Business School ( email )

2-1-2 Hitotsubashi
Chiyoda-ku, Tokyo, 101-8439
Japan

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