Individual Investors’ Dividend Tax Reform and Corporate Social Responsibility

36 Pages Posted: 11 Oct 2021

See all articles by Dongmin Kong

Dongmin Kong

School of Economics, Huazhong University of Science and Technology

Mianmian Ji

Huazhong University of Science and Technology

Date Written: August 27, 2021

Abstract

This paper examines the effect of individual investors’ dividend tax on the fulfillment of corporate social responsibility (CSR). By introducing the implementation of dividend tax reform (DTR) for individual investors, we present strong evidence that the reduction of the individual investors' dividend tax significantly reduces the fulfillment of CSR activities related to all stakeholders, except for shareholders. A plausible mechanism is that the reform encourages individual investors to increase holding periods, thereby crowding out institutional investors, which further reduces the firms’ external monitoring pressure. The effect is particularly pronounced for firms with high ownership concentration, low individual investor attention, and low executive ownership. By revealing the unintended effect of the individual investors’ DTR on the firms’ fulfillment of CSR, our study presents a clear policy to regulators concerned with CSR and investor protection.

Keywords: dividend tax reform; corporate social responsibility; individual investor.

JEL Classification: G30, G35, K22, M14.

Suggested Citation

Kong, Dongmin and Ji, Mianmian, Individual Investors’ Dividend Tax Reform and Corporate Social Responsibility (August 27, 2021). Available at SSRN: https://ssrn.com/abstract=3912590 or http://dx.doi.org/10.2139/ssrn.3912590

Dongmin Kong (Contact Author)

School of Economics, Huazhong University of Science and Technology ( email )

Bldg. of Econ. School, Louyu Rd. 1037#
HUST, Hongshan Dist.
Wuhan, Hubei 430074
China

Mianmian Ji

Huazhong University of Science and Technology ( email )

1037 Luoyu Road
Wuhan, Hubei 430074
China

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