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Does dividend tax impede competition for corporate charters?

Author

Listed:
  • Tat-Kei Lai

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Travis Ng

Abstract

We develop a model of jurisdictional competition for corporate charters among the states in which a firm’s agency cost depends on the federal dividend income tax rate and the takeover regulations of its domicile state. When firms are mobile across states, the federal dividend income tax rate affects both the intensity of competition among the states and the equilibrium level of state takeover regulations. Our model shows that increasing dividend tax rate weakens the competition for corporate charters under a condition: dividend-paying and the market for corporate control are complementary corporate governance mechanisms. This condition holds empirically, suggesting that dividend tax not only discourages firms from paying dividends but also weakens their corporate governance by disincentivizing states to improve their corporate laws.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Tat-Kei Lai & Travis Ng, 2017. "Does dividend tax impede competition for corporate charters?," Post-Print hal-01744586, HAL.
    • Handle: RePEc:hal:journl:hal-01744586
    DOI: 10.1016/j.jce.2017.08.001
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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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