Insiders' Tax Preferences and Firm's Choice between Dividends and Share Repurchases

55 Pages Posted: 20 Aug 2006

See all articles by Jim Hsieh

Jim Hsieh

George Mason University - Department of Finance

Qinghai Wang

University of Central Florida - College of Business Administration

Date Written: August 18, 2006

Abstract

This paper investigates whether corporate payout policy is associated with insiders' share holdings and their tax preferences. We find that insider ownership and the implied tax liabilities are positively related to firms' propensity to employ share repurchases. Firms with higher levels of or greater increases in insider ownership prefer stock repurchases to cash dividends. This relation is more significant in years when dividends were more tax-disadvantaged relative to capital gains. Our findings are robust to the endogeneity of insider ownership and the inclusion of various control variables such as firm size, permanence of cash flows, growth opportunities, institutional ownership, and executive stock options. Overall, our results suggest that personal tax considerations from insiders affect corporate payout decisions.

Keywords: Payout Policy, Insiders, Taxation

JEL Classification: G35, G32, H24, D82

Suggested Citation

Hsieh, Jim and Wang, Qinghai, Insiders' Tax Preferences and Firm's Choice between Dividends and Share Repurchases (August 18, 2006). Available at SSRN: https://ssrn.com/abstract=925350 or http://dx.doi.org/10.2139/ssrn.925350

Jim Hsieh (Contact Author)

George Mason University - Department of Finance ( email )

4400 University Dr.
George Mason University
Fairfax, VA 22030
United States

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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