What do firms do when dividend tax rates change? An examination of alternative payout responses
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Hanlon_What do firms.pdf
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484.18 KB
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Author(s)
Hanlon, Michelle
Hoopes, Jeffrey L.
Date Issued
June 2014
Journal
Journal of Financial Economics
Publisher
Elsevier BV
Citation
Hanlon, Michelle, and Jeffrey L. Hoopes. “What Do Firms Do When Dividend Tax Rates Change? An Examination of Alternative Payout Responses.” Journal of Financial Economics 114, no. 1 (October 2014): 105–124.
Version
Original manuscript
Abstract
This paper investigates whether investor-level taxes affect corporate payout policy decisions. We predict and find a surge of special dividends in the final months of 2010 and 2012, immediately before individual-level dividend tax rates were expected to increase. We also find evidence that immediately before the expected tax increases, firms altered the timing of their regular dividend payments by shifting what would normally be January regular dividend payments into the preceding December. To our knowledge this is the first evidence in the literature about changes in the timing of regular dividend payments in response to tax law changes. For both actions (specials and shifting), we find that it was more likely for a firm to respond to individual-level tax rates if insiders owned a relatively large amount of the firm. Overall, our paper provides evidence that managers consider individual-level taxes in making corporate payout decisions. Keywords: Dividend taxes, payout policy
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/J.JFINECO.2014.06.004
