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Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Author

Listed:
  • Katarzyna Bilicka
  • İrem Güçeri
  • Evangelos Koumanakos

Abstract

We analyze the performance of firms that were differentially affected by an unexpected tax on dividends before the global financial crisis. We use exogenous policy variation for firms with different legal statuses and financial year-end dates to separately identify the policy announcement and implementation effects. We provide causal evidence for a sharp drop in dividends but zero change in equipment purchases. Treated firms accumulate investment goods that are likely to be owner-manager's personal assets instead of productive capital. At a time of severe liquidity shortage, some of the funds kept in the firm are used to pay back short-term debt.

Suggested Citation

  • Katarzyna Bilicka & İrem Güçeri & Evangelos Koumanakos, 2025. "Dividend Taxation and Firm Performance with Heterogeneous Payout Responses," American Economic Journal: Economic Policy, American Economic Association, vol. 17(2), pages 1-29, May.
    • Handle: RePEc:aea:aejpol:v:17:y:2025:i:2:p:1-29
    DOI: 10.1257/pol.20230109
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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