scispace - formally typeset
Search or ask a question
Journal ArticleDOI

Tax reform and payout policy: Do shareholder clienteles or payout policy adjust?

TL;DR: In this paper, the authors explore the effect of tax reform on the distribution of corporate dividends in Finland and find that Finnish firms altered their dividend policies based on the changed tax incentives of their largest shareholders.
About: This article is published in Journal of Corporate Finance.The article was published on 2010-09-01 and is currently open access. It has received 85 citations till now. The article focuses on the topics: Dividend tax & Dividend.
Citations
More filters
Journal ArticleDOI
TL;DR: In this article, the tax penalty on dividends versus capital gains is statistically significant and negatively related to firms' propensity to pay dividends, initiate such payments, and the amount of dividends paid.
Abstract: We compile a comprehensive international dividend and capital gains tax data set to study tax explanations of corporate payouts for a panel of 5,767 firms from 25 countries for 1990-2008. We find robust evidence that the tax penalty on dividends versus capital gains is statistically significant and negatively related to firms’ propensity to pay dividends, initiate such payments, and the amount of dividends paid. Our analysis further reveals that an increase in the dividend tax penalty raises firms’ likelihood to repurchase shares, initiate such repurchases, and the amount of shares repurchased. This is strong confirming evidence that when listed industrial firms globally design their payout policies, they take into careful consideration the relative tax implications of their payout choices.

98 citations

Posted Content
TL;DR: In this paper, the tax penalty on dividends versus capital gains is statistically significant and negatively related to firms' propensity to pay dividends, initiate such payments, and the amount of dividends paid.
Abstract: We compile a comprehensive international dividend and capital gains tax data set to study tax explanations of corporate payouts for a panel of 5,767 firms from 25 countries for 1990-2008. We find robust evidence that the tax penalty on dividends versus capital gains is statistically significant and negatively related to firms’ propensity to pay dividends, initiate such payments, and the amount of dividends paid. Our analysis further reveals that an increase in the dividend tax penalty raises firms’ likelihood to repurchase shares, initiate such repurchases, and the amount of shares repurchased. This is strong confirming evidence that when listed industrial firms globally design their payout policies, they take into careful consideration the relative tax implications of their payout choices.

86 citations


Cites background from "Tax reform and payout policy: Do sh..."

  • ...5 See, Korkeamaki, Liljeblom, and Pasternack (2010), Pattenden and Twite (2008), Ang, Blackwell, and Megginson (1991), Bell and Jenkinson (2002), Christoffersen, Géczy, Musto, and Reed (2005), Goergen, Renneboog, and Correia da Silva (2005), Alstadsæter and Fjærli (2009), Dewenter and Warther…...

    [...]

  • ...5 See, Korkeamaki, Liljeblom, and Pasternack (2010), Pattenden and Twite (2008), Ang, Blackwell, and Megginson (1991), Bell and Jenkinson (2002), Christoffersen, Géczy, Musto, and Reed (2005), Goergen, Renneboog, and Correia da Silva (2005), Alstadsæter and Fjærli (2009), Dewenter and Warther (1998), and Lee, Liu, Roll, and Subrahmanyam (2006)....

    [...]

Journal ArticleDOI
TL;DR: This article examined the role of carbon risk in dividend policy and how its effect varies between imputation (paying franked dividends) and classical (paying unfranked dividends) tax environments in the unique experimental setting in Australia and found that the probability of paying dividend and dividend payout ratio is lower for firms in the highest emitting industries relative to non-polluters, subsequent to ratification of the Kyoto Protocol.
Abstract: We examine the role of carbon risk in dividend policy, and how its effect varies between imputation (paying franked dividends) and classical (paying unfranked dividends) tax environments in the unique experimental setting in Australia. We find that the probability of paying dividend and dividend payout ratio is lower for firms in the highest-emitting industries (polluters) relative to non-polluters, subsequent to ratification of the Kyoto Protocol. While the post-Kyoto reduction in the likelihood of paying dividend is not significantly different, the reduction in payout ratio is smaller in the imputation environment than classical tax system, highlighting the significance of imputation tax environment only on the impact of carbon risk on dividend payout rather than decision to pay. We further document that the post-Kyoto reduction in dividend payout of polluters is driven by their relative increase in earnings uncertainty. The evidence suggests a causal influence of carbon risk on firm dividend policy.

56 citations

Journal ArticleDOI
Darren Henry1
TL;DR: In this paper, the existence of tax-based dividend clienteles using the novel environment of Australia, which has operated a full dividend imputation system since 1987, was examined.
Abstract: The paper examines the existence of tax-based dividend clienteles using the novel environment of Australia, which has operated a full dividend imputation system since 1987. The analysis jointly focuses on the tax-based preferences of five categories of shareholders, including both domestic and foreign-domiciled shareholder classes. Incorporating the dividend franking percentage as a direct measure of the degree of tax benefit associated with dividends, strong evidence supporting the existence of tax-based dividend clienteles is present for both domestic and foreign shareholder categories. This includes domestic corporate blockholders and company directors, and local institutional investors following tax reforms in 2000, and foreign institutional shareholders which, alternatively, demand lower dividends and dividend franking. These findings persist after considering the effect of share repurchases, and under various model specifications controlling for unobserved firm heterogeneity and potential endogeneity between ownership structure and dividend payout policy.

51 citations

Journal ArticleDOI
TL;DR: In this article, the authors look at results from both comparative and international studies of dividend policy and find that institutional structure, including a country's financial system, institutions, culture, and industrial organization, is important in determining dividend policy.

47 citations

References
More filters
Posted Content
TL;DR: In this paper, the benefits of debt in reducing agency costs of free cash flows, how debt can substitute for dividends, why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, and why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil.
Abstract: The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows—more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs of free cash flows, 2) how debt can substitute for dividends, 3) why “diversification” programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, 4) why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil, and 5) why bidders and some targets tend to perform abnormally well prior to takeover.

14,368 citations

Journal ArticleDOI
TL;DR: In this article, the authors examine the different methods used in the literature and explain when the different approaches yield the same (and correct) standard errors and when they diverge, and give researchers guidance for their use.
Abstract: In both corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms and across time, and OLS standard errors can be biased. Historically, the two literatures have used different solutions to this problem. Corporate finance has relied on clustered standard errors, while asset pricing has used the Fama-MacBeth procedure to estimate standard errors. This paper examines the different methods used in the literature and explains when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.

7,647 citations

Journal ArticleDOI
TL;DR: In this paper, the authors argue that the structure of corporate ownership varies systematically in ways that are consistent with value maximization, and they find no significant relationship between ownership concentration and accounting profit rates for a set of firms.
Abstract: This paper argues that the structure of corporate ownership varies systematically in ways that are consistent with value maximization. Among the variables that are empirically significant in explaining the variation in ownership structure for 511 U.S. corporations are firm size, instability of profit rate, whether or not the firm is a regulated utility or financial institution, and whether or not the firm is in the mass media or sports industry. Doubt is cast on the Berle-Means thesis, as no significant relationship is found between ownership concentration and accounting profit rates for this set of firms.

6,551 citations


Additional excerpts

  • ...Our ownership models follow Demsetz and Lehn (1985) and Demsetz and Villalonga (2001), with the exception that we exclude firm specific risk from the models....

    [...]

  • ...Studies of cross-sectional ownership patterns, mainly ownership concentration, often follow Demsetz and Lehn (1985), who provide evidence of corporate ownership being endogeous....

    [...]

01 Jan 1956
TL;DR: Lintner as discussed by the authors discusses the distribution of income of corporations among dividends, retained earnings, and taxes in the context of the Sixtyeighth Annual Meeting of the American Economic Association.
Abstract: Distribution of Incomes of Corporations Among Dividens, Retained Earnings, and Taxes Author(s): John Lintner Source: The American Economic Review, Vol. 46, No. 2, Papers and Proceedings of the Sixtyeighth Annual Meeting of the American Economic Association, (May, 1956), pp. 97-113 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/1910664 Accessed: 26/06/2008 14:06

3,524 citations

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the relation between the ownership structure and the performance of corporations if ownership is made multi-dimensional and also is treated as an endogenous variable, and they found no statistically significant relation between ownership structures and firm performance.

1,770 citations