Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts

Martin Jacob; Roni Michaely

doi:10.1093/rfs/hhx041

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Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts

Martin Jacob¹; Roni Michaely²

¹ WHU – Otto Beisheim School of Management · ² Samuel Curtis Johnson School of Management at Cornell University

Review of Financial Studies 2017

Using proprietary data on the entire spectrum of ownership structure and exact tax status of investors and firms, we examine how dividend taxation affects payout. Utilizing an exogenous shock to dividend taxation, we show that absent any frictions, dividend taxation has a large impact on payout. As agency issues and shareholder conflicts increase, owners’ tax preferences have significantly smaller impact on payout. Three mechanisms reduce the dividend-tax sensitivity: Coordination among owners, heterogeneity in tax preferences, and diverging objectives between managers and owners. Altogether, taxation has a first-order impact on payout, but agency issues and shareholder conflicts mute its impact substantially.Received June 20, 2016; editorial decision January 24, 2017 by Editor Francesca Cornelli.

DOI: 10.1093/rfs/hhx041
Volume: 30 (9)
Pages: 3176-3222
Language: en
Export: BibTeX
Sources: openalex crossref