Tax clientele and share repurchase execution

Jin-Ying Wang

The Quarterly Review of Economics and Finance, 2023, vol. 88, issue C, 168-176

Abstract: This study hypothesizes that low-tax clientele firms are reluctant to engage in share repurchases because their shareholders’ dividend tax penalty is less than the expropriation of strategic trading in share repurchases. As a result, firms formed by low-tax clientele execute share repurchases in a cost minimization strategy when they consider the tax status of most of their shareholders. Using novel data from Taiwan, this research finds that, compared to high-tax clientele firms, low-tax clientele firms tend to use market timing skills to repurchase stocks and get a larger price discount in the repurchase execution. The findings enrich the dividend tax penalty and market timing literature and offer practical implications for shareholder activism.

Keywords: Dividend tax penalty; Tax clientele; Share repurchases; Market timing (search for similar items in EconPapers)
JEL-codes: G30 G35 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:88:y:2023:i:c:p:168-176

DOI: 10.1016/j.qref.2023.01.003

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