Research report

What if dividends were tax-exempt? : Evidence from a natural experiment

    01.02.2019

42

English We study the effect of dividend taxes on the payout and investment policy of listed firms and discuss their implications for agency problems. To do so, we exploit a unique setting in Switzerland where some, but not all, firms were suddenly able to pay tax-exempted dividends to their shareholders following the corporate tax reform of 2011. Using a difference-indifferences specification, we show that treated firms increased their payout by around 30% compared to control firms after the tax cut. Differently, treated firms did not concurrently or subsequently increase investment. We show that the tax-inelasticity of investment was due to a significant drop in retained earnings ̶ as the rise in dividends was not compensated by an equally-sized reduction in share repurchases. Furthermore, treated firms did not raise more equity than control firms. Lastly, we show that an unintended consequence of cutting dividend taxes is to mitigate the agency problems that arise between insiders and minority shareholders.
Collections
Faculty
Faculté des sciences économiques et sociales
Language
  • English
Classification
Economics
Other electronic version

Faculté SES

Series statement
  • Working Papers SES ; 498, revised
License
License undefined
Identifiers
  • RERO DOC 324134
  • RERO R008897658
Persistent URL
https://folia.unifr.ch/unifr/documents/307610
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