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The effect of ownership structure on corporate payout policy and performance: Evidence from Korea's exogenous dividends tax shock

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  • Lee, Yu Kyung

Abstract

For three years, from 2015 to 2017, the Korean government granted temporary tax benefits to shareholders of firms that exceeded certain thresholds to qualify as high-dividend firms. Using the temporary tax cut as an exogenous tax shock imposed on the market, I examine the impact of the tax cut on high-dividend firms' changes in dividend policy and firm performance, focusing on ownership by majority shareholders. I find that the majority shareholders are more likely to meet the requirements of high-dividend firms to enjoy temporary tax benefits when they have more stake. I also reveal that the dividends increase with the majority shareholders' level of ownership in high-dividend firms, while tax-advantaged stock repurchases decrease. Finally, I find that the majority shareholders' level of ownership in high-dividend firms has a significantly negative effect on the firms' short- and long-term performance. These results suggest that the tax reforms led to agency problems.

Suggested Citation

  • Lee, Yu Kyung, 2022. "The effect of ownership structure on corporate payout policy and performance: Evidence from Korea's exogenous dividends tax shock," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000580
    DOI: 10.1016/j.pacfin.2022.101763
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    Cited by:

    1. Lee, Seung Chul & Park, S. Saeyeul, 2023. "Dividend taxes and corporate choice: Evidence from 2015 tax cut in South Korea," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Corporate dividends policy; The dividends tax reform; Majority shareholder; Agency problems;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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