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

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Author Info
Nam, Jouahn (Pace University)
Wang, Jun (Baruch College)
Zhang, Ge (University of New Orleans)
Abstract

We examine the impact of the May 2003 dividend tax cut and managerial stock holdings on corporate dividend initiation decision. We find that managers who hold sizable stakes in their companies are more likely to initiate dividends following this tax cut. This positive relation is stronger for firms with higher growth opportunities. These results are consistent with the hypothesis that managers initiate dividends to maximize their own wealth. Moreover, the market reacts negatively (most positively) to dividend initiation announcements by firms with higher (lower) growth opportunities and higher (lower) managerial share holdings.

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Paper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2004-09.

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Length: 31 pages
Date of creation: 2004
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Handle: RePEc:uno:wpaper:2004-09

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Related research
Keywords: Dividend tax cut Managerial stock holdings Dividend payout

Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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    Other versions:
  2. Shlomo Benartzi & Roni Michaely & Richard Thaler, 1997. "Do Changes in Dividends Signal the Future or the Past?," CRSP working papers 455, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    Other versions:
  3. James M. Poterba & Lawrence H. Summers, 1985. "The Economic Effects of Dividend Taxation," NBER Working Papers 1353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April. [Downloadable!] (restricted)
    Other versions:
  5. Leonie Bell & Tim Jenkinson, 2002. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," Journal of Finance, American Finance Association, vol. 57(3), pages 1321-1346, 06. [Downloadable!] (restricted)
    Other versions:
  6. Clifford P. Stephens & Michael S. Weisbach, 1998. "Actual Share Reacquisitions in Open-Market Repurchase Programs," Journal of Finance, American Finance Association, vol. 53(1), pages 313-333, 02. [Downloadable!] (restricted)
  7. Harry DeAngelo & Linda DeAngelo & Rene Stulz, 2004. "Dividend Policy, Agency Costs, and Earned Equity," NBER Working Papers 10599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. William M. Gentry & Deen Kemsley & Christopher J. Mayer, 2001. "Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts," NBER Working Papers 8486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Fenn, George W. & Liang, Nellie, 2001. "Corporate payout policy and managerial stock incentives," Journal of Financial Economics, Elsevier, vol. 60(1), pages 45-72, April. [Downloadable!] (restricted)
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  13. Miller, Merton H & Scholes, Myron S, 1982. "Dividends and Taxes: Some Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1118-41, December. [Downloadable!] (restricted)
  14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
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