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Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

  • Jeffrey R. Brown
  • Nellie Liang
  • Scott Weisbenner

We test whether executive stock ownership affects firm payouts using the 2003 dividend tax cut to identify an exogenous change in the after-tax value of dividends. We find that executives with higher stock ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in previous periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.

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File URL: http://www.nber.org/papers/w11002.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11002.

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Date of creation: Dec 2004
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Publication status: published as Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2007. "Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut," Journal of Finance, American Finance Association, vol. 62(4), pages 1935-1965, 08.
Handle: RePEc:nbr:nberwo:11002
Note: PE CF
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