Dividends are a key mechanism for shareholders to discipline managers and mitigate agency conflicts. This study examines whether the volatility of tax payments is associated with dividend payouts. Consistent with the predictions, results suggest that firms with more volatile tax payments are less likely to pay dividends overall and their dividends are lower in magnitude when doing so. These effects are economically significant and incremental to a firm's operating risk. The link between volatile tax payments and the likelihood of dividend payouts is weaker for firms that distribute dividends to alleviate agency conflicts. Similarly, the link between volatile tax payments and the amount of dividend payouts is weaker for firms that hold more cash for tax reasons. Taken together, these findings add to our understanding of the economic consequences of volatile tax payments and the determinants of dividend payouts.

The Tax Cuts and Jobs Act (TCJA) of 2017 marked a significant change in U.S. domestic and international tax policy, altering incentives for U.S. firms to own foreign assets. We examine the initial response of U.S. firms’ foreign acquisition patterns to the TCJA’s key reform provisions. We find a significant overall decrease in the probability that a foreign target is acquired by a U.S. firm after the reform, suggesting that the net effect of the TCJA was to reduce acquisitions abroad. Cross-sectional variation across target and acquirer characteristics points to the elimination of the repatriation tax and the TCJA’s global intangible low-taxed income (GILTI) regime as critically influencing cross-border acquisitions by U.S. firms. Specifically, U.S. acquirers with little foreign presence prior to the TCJA are more likely to acquire a foreign target, while U.S. acquirers are less likely to acquire profitable targets in low-tax countries. Results from our empirical analyses are consistent with the TCJA prompting fewer but more value-enhancing, less tax-motivated foreign acquisitions by U.S. firms.

Effective policymakers must balance the demands of formulating a corporate tax system that raises revenue and spurs economic activity (e.g., investment) while promoting a “level playing field” across firms. Balancing these tradeoffs has likely caused tax systems to become more complex over time, increasing firms’ difficulty in understanding and complying with tax regulations. We investigate the impact of tax system complexity on the responsiveness of firm‐level investment to tax policy changes. Exploiting staggered tax rate changes and variation in tax system complexity across countries, we document two key findings. First, firm‐level investment is less sensitive to changes in the corporate tax rate when tax system complexity is higher, suggesting that such complexity can undermine the ability of tax policy to affect economic growth. Second, the impact of tax complexity on the sensitivity of investment to tax rate changes varies significantly across firms, with domestic‐owned, smaller, and private firms being more affected. These cross‐sectional disparities are consistent with tax system complexity potentially reducing tax system parity. Collectively, our findings suggest that corporate tax system complexity can negatively impact the ability of fiscal policy to affect investment and lead to heterogeneous tax policy responses across firms.

Using a global sample of multinational corporations (MNCs) and their foreign subsidiaries, we find that repatriation taxes impair subsidiary-level investment efficiency. Consistent with internal agency conflicts between the central management of the MNC and the manager of the foreign subsidiary being the driver, we show that this effect is concentrated in subsidiaries with high information asymmetry and in subsidiaries that are weakly monitored. Quasi-natural experiments in the U.K. and Japan establish a causal relationship for our findings and suggest that a repeal of repatriation taxes increases subsidiary-level investment efficiency while reducing the level of investment. Our paper provides timely empirical evidence to inform expectations for the effects of a recent change to the U.S. international tax law that eliminated repatriation taxes from most of the future foreign earnings of U.S. MNCs. JEL Classifications: H21; H25; F23; G31. Data Availability: Data are available from the public sources cited in the text.