Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

67 Pages Posted: 6 Jan 2023

See all articles by Katarzyna Anna Bilicka

Katarzyna Anna Bilicka

Utah State University

Irem Güçeri

University of Oxford

Evangelos Koumanakos

Hellenic Open University

Multiple version iconThere are 2 versions of this paper

Date Written: 2022

Abstract

We analyze the short and long-run performance of firms that were differentially affected by a new tax on dividends in the lead-up to the Global Financial Crisis. We use exogenous policy variation for firms with different legal statuses and financial year-end dates to causally identify the policy impact. Consistent with intertemporal tax arbitrage, immediately-affected firms significantly reduce payouts. At a time of severe liquidity shortage, the average firm uses the undistributed cash to pay back debt. In the long run, the allocation of undistributed cash to investment, retained earnings, and debt repayment predicts growth and the likelihood of bankruptcy.

Keywords: dividend tax, firm survival, investment, intertemporal tax arbitrage

JEL Classification: H320, H250, G320, G110

Suggested Citation

Bilicka, Katarzyna Anna and Güçeri, Irem and Koumanakos, Evangelos, Dividend Taxation and Firm Performance with Heterogeneous Payout Responses (2022). CESifo Working Paper No. 10185, Available at SSRN: https://ssrn.com/abstract=4319030 or http://dx.doi.org/10.2139/ssrn.4319030

Irem Güçeri

University of Oxford ( email )

Mansfield Road
Oxford, OX1 4AU
United Kingdom

Evangelos Koumanakos

Hellenic Open University ( email )

Parodos Aristotelous 18
Patra, 26335
Greece

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