Accelerated depreciation of fixed assets and cash dividend distribution

Huaming Zhong, Yaoting Guo and Zinb Abduljabbar Mohamed Al-Duais

The North American Journal of Economics and Finance, 2024, vol. 71, issue C

Abstract: This study utilizes the introduction of the accelerated depreciation policy on fixed assets in 2014 as a quasi-natural experiment to analyze the impact and mechanism of macro tax incentive policies on corporate dividend policy using data from China's A-share market between 2010 and 2017. Applying a difference-in-differences method, the study finds that the policy significantly reduces the cash dividend distribution of listed companies, with the effect being more pronounced in private enterprises than in state-owned enterprises. The mechanism analysis reveals that the decrease in cash dividend distribution is mainly due to the reduction of free cash flow caused by the increase in fixed asset and R&D investment of listed companies affected by the policy. Further analysis shows that the accelerated depreciation policy of fixed assets has a significantly positive impact on whether listed companies start or stop distributing cash dividends, and it also has a significant positive impact on the stock repurchase behavior of listed companies. In other words, the accelerated depreciation policy of fixed assets has different effects on different forms of dividend policy. By delving into the dividend policy behavior of listed companies under tax considerations, this study provides valuable insights into the mechanism of corporate dividend policy formation and enriches the understanding of tax factors in corporate finance theory.

Keywords: Accelerated depreciation of fixed assets; Distribution of cash dividends; Share buybacks; Dividend policy (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000160

DOI: 10.1016/j.najef.2024.102092

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