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The Power of Faith: Effects of an Imam-led Information Campaign on Labor Supply and Social Interactions

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  • Salvatore Federico
  • Andrea Modena
  • Luca Regis

Abstract

We study the impact of state-contingent dividend taxes (and bans) and capital regulation on a firm’s optimal strategy and value. In the model, the firm generates stochastic income under time-varying macroeconomic conditions. Its manager distributes dividends and issues costly equity to maximize shareholder value. We solve the manager’s stochastic control problem and derive the firm’s reserve distribution in closed form. Imposing dividend taxes (or bans) during crises generates a trade-off, as it encourages reserve accumulation in bad states but promotes payouts in good ones. Also, the policy undermines financial stability by reducing the firm’s value and its recapitalization incentives across states. Coordinating dividend taxes with counter-cyclical capital regulation can mitigate value losses and ameliorate the trade-off, but it also creates additional recapitalization disincentives.

Suggested Citation

  • Salvatore Federico & Andrea Modena & Luca Regis, 2025. "The Power of Faith: Effects of an Imam-led Information Campaign on Labor Supply and Social Interactions," CRC TR 224 Discussion Paper Series crctr224_2025_622, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_622
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    More about this item

    Keywords

    Capital requirements; dividend bans; payout taxation; policy coordination; stochastic control.;
    All these keywords.

    JEL classification:

    • 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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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