EconPapers    
Economics at your fingertips  
 

Uncertainty and firm dividend policy—A natural experiment

Bonnie G. Buchanan, Cathy Xuying Cao, Eva Liljeblom () and Susan Weihrich

Journal of Corporate Finance, 2017, vol. 42, issue C, 179-197

Abstract: We examine how firms respond to uncertainty around U.S. tax policy changes, namely the individual level tax rate increases set to take effect on January 1, 2011 and January 1, 2013. We provide evidence that firms time the uncertainty in the tax environment and revise their dividend policy to an expected tax increase. We find that firms are likely to initiate their dividends or intensively increase their existing dividend amount one year before the expected tax increase. In addition, in 2012 when there is much less uncertainty on dividend tax changes than in 2010, firms are less likely to initiate a regular dividend but are more likely to initiate special dividends. The results suggest that firms facing less tax uncertainty are less likely to make long-term commitments on regular dividend payments but are more likely to take advantage of the last-minute low tax benefits by issuing special dividends. Furthermore, the response to the possible elimination of a tax cut was strongest in firms with high levels of tax-affected ownership, supporting the argument that when facing policy uncertainty, firms behave to prepare for the worst scenarios from the viewpoint of the shareholders, which in this case is a tax increase.

Keywords: Dividend taxes; Uncertainty; Payout policy; Dividend initiation (search for similar items in EconPapers)
JEL-codes: G35 G32 G38 H32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119916302966
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Uncertainty and firm dividend policy – a natural experiment (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:42:y:2017:i:c:p:179-197

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-09-30
Handle: RePEc:eee:corfin:v:42:y:2017:i:c:p:179-197