Family Firms' Dividend Policies: Evidence from a Japanese Tax Reform

16 Pages Posted: 3 Jun 2021 Last revised: 28 Jun 2021

Date Written: June 5, 2021

Abstract

We hypothesize that family firms’ dividend policies are in part determined by a consumption smoothing motive of family shareholders. Our paper tests this hypothesis using a Japanese dividend tax reform in 2011 which increased the dividend tax rate for only some groups of major family shareholders. In this quasi-experimental setting, we find that family firms with non-executive family shareholders, who were likely rentiers, counteracted the tax increase by increasing dividends. This behavior cannot be explained by standard theories of dividend policy, which predict a lower dividend payout, and highlights a unique governance problem in family firms.

Keywords: Family firm, Dividend policy, Corporate governance, Consumption smoothing

JEL Classification: G34, G35, H25

Suggested Citation

Kasahara, Akitada and Orihara, Masanori, Family Firms' Dividend Policies: Evidence from a Japanese Tax Reform (June 5, 2021). Finance Research Letters, 2021, 102199, Available at SSRN: https://ssrn.com/abstract=3858212

Akitada Kasahara

Osaka University ( email )

1-1 Yamadaoka
Suita
Osaka, 565-0871
Japan

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