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Taxation and the cash flow sensitivity of dividends

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  • Jacob, Marcus
  • Jacob, Martin

Abstract

This paper investigates tax reasons for cross-sectional deviations from the general consensus in literature that a firm’s cash flow has a positive effect on dividend payout. We use a large multinational panel data set to show that the positive cash flow sensitivity of dividends is decreasing in dividend taxes.

Suggested Citation

  • Jacob, Marcus & Jacob, Martin, 2013. "Taxation and the cash flow sensitivity of dividends," Economics Letters, Elsevier, vol. 118(1), pages 186-188.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:186-188
    DOI: 10.1016/j.econlet.2012.09.019
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    References listed on IDEAS

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    1. Heitor Almeida & Murillo Campello & Antonio F. Galvao, 2010. "Measurement Errors in Investment Equations," The Review of Financial Studies, Society for Financial Studies, vol. 23(9), pages 3279-3328.
    2. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 791-833.
    3. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, August.
    4. Erickson, Timothy & Whited, Toni M., 2002. "Two-Step Gmm Estimation Of The Errors-In-Variables Model Using High-Order Moments," Econometric Theory, Cambridge University Press, vol. 18(3), pages 776-799, June.
    5. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    6. Korinek, Anton & Stiglitz, Joseph E., 2009. "Dividend taxation and intertemporal tax arbitrage," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 142-159, February.
    7. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
    8. Holger Spamann, 2010. "The "Antidirector Rights Index" Revisited," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 467-486, February.
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    Citations

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    Cited by:

    1. Kopczuk, Wojciech & Alstadsæter, Annette & Jacob, Martin & Telle, Kjetil, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from," CEPR Discussion Papers 11671, C.E.P.R. Discussion Papers.
    2. Annette Alstadsæter & Martin Jacob & Wojciech Kopczuk & Kjetil Telle, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from Norway," NBER Working Papers 22888, National Bureau of Economic Research, Inc.
    3. Annika Hegemann & Angela Kunoth & Kristina Rupp & Caren Sureth-Sloane, 2017. "Hold or sell? How capital gains taxation affects holding decisions," Review of Managerial Science, Springer, vol. 11(3), pages 571-603, July.
    4. Chi, Yung-Ling, 2022. "Owners’ portfolio diversification and internal capital allocation," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    5. Ed-Dafali, Slimane & Patel, Ritesh & Iqbal, Najaf, 2023. "A bibliometric review of dividend policy literature," Research in International Business and Finance, Elsevier, vol. 65(C).
    6. Hegemann, Annika & Kunoth, Angela & Rupp, Kristina & Sureth, Caren, 2015. "Impact of capital gains taxation on the holding period of investments under different tax systems," arqus Discussion Papers in Quantitative Tax Research 183, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    Taxation; Dividends; Cash flow sensitivity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H - Public Economics

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