Do Taxes Impact Payout? Evidence from the First Direct Tax on Repurchases

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See all articles by L Bargeron

L Bargeron

University of Kentucky - Gatton College of Business and Economics

Alice A. Bonaime

University of Arizona

Yuling Guo

University of Kentucky, Gatton College of Business and Economics, Department of Finance & Quantitative Methods

David Moore

Loyola Marymount University

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Yi Zhou

University of Arizona - Eller College of Management

Date Written: March 18, 2024

Abstract

This paper studies the impact of taxes on payout by exploring firms' response to an unprecedented 1% excise tax on stock repurchases. Using monthly hand-collected data, we find that firms decrease repurchases by 5%-10% post-tax, with a more pronounced decline for firms most affected by the tax. Contemporaneous dividend increases fail to offset repurchase cuts, leading to a drop in total payouts. Investment and employment remain largely unchanged; instead, affected firms increase cash holdings. Our findings suggest taxes become a first-order consideration in payout policy when firms must internalize an easily quantifiable tax on a more flexible form of payout.

Keywords: Payout policy, share repurchases, buybacks, excise tax, dividends

JEL Classification: G14, G35, M12, M52

Suggested Citation

Bargeron, L and Bonaime, Alice A. and Guo, Yuling and Moore, David and Obernberger, Stefan and Zhou, Yi, Do Taxes Impact Payout? Evidence from the First Direct Tax on Repurchases (March 18, 2024). Available at SSRN: https://ssrn.com/abstract=

L Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

Alice A. Bonaime (Contact Author)

University of Arizona ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Yuling Guo

University of Kentucky, Gatton College of Business and Economics, Department of Finance & Quantitative Methods ( email )

Lexington, KY 40506
United States

David Moore

Loyola Marymount University ( email )

Los Angeles, CA 90045
United States

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Yi Zhou

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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