What If Dividends Were Tax-Exempt? Evidence from a Natural Experiment

Abstract We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. We exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends. We show that treated fir...

Full description

Saved in:
Bibliographic Details
Published in:The Review of financial studies 2021-12, Vol.34 (12), p.5756-5795
Main Authors: Isakov, Dušan, Pérignon, Christophe, Weisskopf, Jean-Philippe
Format: Article
Language:English
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Abstract We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. We exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends. We show that treated firms increase their dividend payout by around 30$\%$ after the tax cut. The effect on payout is less pronounced for firms prone to agency conflicts. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhab010