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Family firms’ dividend policies: Evidence from a Japanese tax reform

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  • Kasahara, Akitada
  • Orihara, Masanori

Abstract

We hypothesize that family firms’ dividend policies are in part determined by a consumption smoothing motive of family shareholders. Our paper tests this hypothesis using a Japanese dividend tax reform in 2011 which increased the dividend tax rate for only some groups of major family shareholders. In this quasi-experimental setting, we find that family firms with non-executive family shareholders, who were likely rentiers, counteracted the tax increase by increasing dividends. This behavior cannot be explained by standard theories of dividend policy, which predict a lower dividend payout, and highlights a unique governance problem in family firms.

Suggested Citation

  • Kasahara, Akitada & Orihara, Masanori, 2022. "Family firms’ dividend policies: Evidence from a Japanese tax reform," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321002683
    DOI: 10.1016/j.frl.2021.102199
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    References listed on IDEAS

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    1. 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.
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    4. Chen, Zhilan & Cheung, Yan-Leung & Stouraitis, Aris & Wong, Anita W.S., 2005. "Ownership concentration, firm performance, and dividend policy in Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 13(4), pages 431-449, September.
    5. Mark T. Leary & Roni Michaely, 2011. "Determinants of Dividend Smoothing: Empirical Evidence," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3197-3249.
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    7. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
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    More about this item

    Keywords

    Family firm; Dividend policy; Corporate governance; Consumption smoothing;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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