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
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
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