The effect of dividend tax reform on earnings management: Evidence from a natural experiment in Korea

Catherine Heyjung Sonu

Finance Research Letters, 2025, vol. 71, issue C

Abstract: This study examines the effect of dividend tax reform on earnings management by utilizing a natural experiment in Korea. From 2015 to 2017, the Korean government reduced the tax burden on dividends for firms exceeding specific thresholds for dividend payout ratio. Using a staggered difference-in-differences design, this study finds that tax-eligible firms significantly decreased discretionary accruals during the reform period. The findings are robust to endogeneity tests, firm fixed effects, and alternative measures of earnings management. The study offers insights for academics and policy makers on how dividend tax incentives shape corporate financial reporting behavior.

Keywords: Dividend tax reform; Earnings management; Discretionary accruals; Tax cut; Dividend income tax (search for similar items in EconPapers)
JEL-codes: D22 G32 G35 G38 H25 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:71:y:2025:i:c:s154461232401479x

DOI: 10.1016/j.frl.2024.106450

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