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The impact of the dividend tax cut and managerial stock holdings on corporate dividend policy

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  • Nam, Jouahn
  • Wang, Jun
  • Zhang, Ge

Abstract

We examine the impact of the May 2003 dividend tax cut and managerial stock holdings on corporate dividend initiation. We find that executives who hold sizable stakes in their companies become more likely to initiate dividends following this tax cut. The firms that initiate dividends after the tax cut are more profitable than firms that initiate dividends before the tax cut. The market appears to recognize the managers' incentive change after the tax law change. Firms with higher managerial stock holdings receive lower abnormal returns from announcing dividend initiation.

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  • Nam, Jouahn & Wang, Jun & Zhang, Ge, 2010. "The impact of the dividend tax cut and managerial stock holdings on corporate dividend policy," Global Finance Journal, Elsevier, vol. 21(3), pages 275-292.
    • Handle: RePEc:eee:glofin:v:21:y:2010:i:3:p:275-292
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    1. Sue-Tzeng Chuang & Ying-Hsiang Chen & Ching-Chieh Lin & Wen-Chih Lee, 2018. "The Impact of Tax Deduction Ratio Reduction on Dividend Payouts Under the Integrated Tax System: Evidence From Taiwan," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(3), pages 26-35, July.
    2. Pantelis Longinidis & Panagiotis Symeonidis, 2013. "Corporate Dividend Policy Determinants: Intelligent Versus A Traditional Approach," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 20(2), pages 111-139, April.
    3. Hadfi Bilel & Kouki Mondher, 2021. "What Can explain catering of dividend? Environment information and investor sentiment," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(3), pages 428-450, July.
    4. Herron, Richard & Platt, Katarzyna, 2021. "World dividends and tax shocks," Global Finance Journal, Elsevier, vol. 47(C).
    5. Bradley Benson & Travis Davidson & Hui James & Hongxia Wang, 2022. "Board busyness and corporate payout: are all busy directors the same?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3711-3759, September.
    6. Henrekson, Magnus & Sanandaji, Tino, 2016. "Owner-Level Taxes and Business Activity," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 12(1), pages 1-94, March.
    7. Yan Chunning & Zhang Hang & Chen Qianqian & Huang Yangxin, 2014. "An Improved Model of Dividend Tax Based on Continuous Function," Journal of Systems Science and Information, De Gruyter, vol. 2(6), pages 568-576, December.

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