IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

What do firms do when dividend tax rates change? An examination of alternative payout responses

Listed author(s):
  • Hanlon, Michelle
  • Hoopes, Jeffrey L.
Registered author(s):

    This paper investigates whether investor-level taxes affect corporate payout policy decisions. We predict and find a surge of special dividends in the final months of 2010 and 2012, immediately before individual-level dividend tax rates were expected to increase. We also find evidence that immediately before the expected tax increases, firms altered the timing of their regular dividend payments by shifting what would normally be January regular dividend payments into the preceding December. To our knowledge this is the first evidence in the literature about changes in the timing of regular dividend payments in response to tax law changes. For both actions (specials and shifting), we find that it was more likely for a firm to respond to individual-level tax rates if insiders owned a relatively large amount of the firm. Overall, our paper provides evidence that managers consider individual-level taxes in making corporate payout decisions.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X14001317
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 114 (2014)
    Issue (Month): 1 ()
    Pages: 105-124

    as
    in new window

    Handle: RePEc:eee:jfinec:v:114:y:2014:i:1:p:105-124
    DOI: 10.1016/j.jfineco.2014.06.004
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Abrutyn, Stephanie & Turner, Robert W., 1990. "Taxes and Firms' Dividend Policies: Survey Results," National Tax Journal, National Tax Association, vol. 43(4), pages 491-496, December.
    2. Healy, Paul M. & Palepu, Krishna G., 1988. "Earnings information conveyed by dividend initiations and omissions," Journal of Financial Economics, Elsevier, vol. 21(2), pages 149-175, September.
    3. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 791-833.
    4. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1990. "Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form," NBER Working Papers 3222, National Bureau of Economic Research, Inc.
    5. Desai, Mihir A. & Jin, Li, 2011. "Institutional tax clienteles and payout policy," Journal of Financial Economics, Elsevier, vol. 100(1), pages 68-84, April.
    6. 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.
    7. William Greene, 2004. "The behaviour of the maximum likelihood estimator of limited dependent variable models in the presence of fixed effects," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 98-119, June.
    8. Bolster, Paul J. & Janjigian, Vahan, 1991. "Dividend Policy and Valuation Effects of the Tax Reform Act of 1986," National Tax Journal, National Tax Association, vol. 44(4), pages 511-518, December.
    9. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J., 2004. "Are dividends disappearing? Dividend concentration and the consolidation of earnings," Journal of Financial Economics, Elsevier, vol. 72(3), pages 425-456, June.
    10. Abrutyn, Stephanie & Turner, Robert W., 1990. "Taxes and Firms' Dividend Policies: Survey Results," National Tax Journal, National Tax Association, vol. 43(4), pages 491-96, December.
    11. Bolster, Paul J. & Janjigian, Vahan, 1991. "Dividend Policy and Valuation Effects of the Tax Reform Act of 1986," National Tax Journal, National Tax Association, vol. 44(4), pages 511-18, December.
    12. Alon Brav & John R. Graham & Campbell R. Harvey & Roni Michaely, 2008. "Managerial Response to the May 2003 Dividend Tax Cut," Financial Management, Financial Management Association International, vol. 37(4), pages 611-624, December.
    13. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    14. Jesse Edgerton, 2013. "Four facts about dividend payouts and the 2003 tax cut," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(5), pages 769-784, October.
    15. Jennifer Blouin & Jana Raedy & Douglas Shackelford, 2010. "Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes," NBER Working Papers 16129, National Bureau of Economic Research, Inc.
    16. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 433-446.
    17. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
    18. Brandon Julio & David L. Ikenberry, 2004. "Reappearing Dividends," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(4), pages 89-100.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:114:y:2014:i:1:p:105-124. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.