The impact of double taxation on small firms' cash holdings

Hui Di and Steven Allen Hanke

Applied Financial Economics, 2013, vol. 23, issue 16, 1349-1359

Abstract: Prior literature conjectures that double taxation has a negative impact on corporate liquidity. However, there is a lack of empirical evidence for the proposition. By examining small publicly-traded C corporations, we find a negative relation between long-run cash effective tax rates and cash holdings. Such a tax impact occurred before the reduction in double taxation in 2003 but not afterwards. Another unexplored issue is whether it is effective to enact double taxation reducing policies when economic conditions deteriorate. Our results reveal that such policies should be made permanent instead of being employed only when economic conditions deteriorate.

Date: 2013
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DOI: 10.1080/09603107.2013.818211

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