What If Dividends Were Tax-Exempt? Evidence from a Natural Experiment

Financial constraints, asset tangibility, and corporate investment

Dusan Isakov, Christophe Pérignon and Jean-Philippe Weisskopf

The Review of Financial Studies, 2021, vol. 34, issue 12, 5756-5795

Abstract: We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. We exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends. We show that treated firms increase their dividend payout by around 30 after the tax cut. The effect on payout is less pronounced for firms prone to agency conflicts. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment.

JEL-codes: G35 G38 H25 K34 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: What If Dividends Were Tax‐Exempt? Evidence from a Natural Experiment (2020)
Working Paper: What if dividends were tax-exempt? Evidence from a natural experiment (2019)
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