Review of Financial Studies Vol. 34 No. 12 2021
What If Dividends Were Tax-Exempt? Evidence from a Natural Experiment
Abstract
We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. We exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends. We show that treated firms increase their dividend payout by around 30% after the tax cut. The effect on payout is less pronounced for firms prone to agency conflicts. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment.
- DOI
- 10.1093/rfs/hhab010
- Volume
- 34
- Issue
- 12
- Pages
- 5756-5795
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref