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Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Author

Listed:
  • Katarzyna A. Bilicka
  • Irem Guceri
  • Evangelos Koumanakos

Abstract

We analyze the short and long-run performance of firms that were differentially affected by a new tax on dividends in the lead-up to the Global Financial Crisis. We use exogenous policy variation for firms with different legal statuses and financial year-end dates to causally identify the policy impact. Consistent with intertemporal tax arbitrage, immediately-affected firms significantly reduce payouts. At a time of severe liquidity shortage, the average firm uses the undistributed cash to pay back debt. In the long run, the allocation of undistributed cash to investment, retained earnings, and debt repayment predicts growth and the likelihood of bankruptcy.

Suggested Citation

  • Katarzyna A. Bilicka & Irem Guceri & Evangelos Koumanakos, 2022. "Dividend Taxation and Firm Performance with Heterogeneous Payout Responses," NBER Working Papers 30808, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30808
    Note: PE
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    Cited by:

    1. Holmberg, Johan & Selin, Håkan, 2025. "Firm-Level Responses to a Canceled Dividend Tax Increase," Umeå Economic Studies 1040, Umeå University, Department of Economics.
    2. Kristoffer Berg, 2025. "Taxing Corporate or Shareholder Income," CESifo Working Paper Series 12149, CESifo.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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