Dividends and Taxes: The Moderating Role of Agency Conflicts

Dividends and Taxes: The Moderating Role of Agency Conflicts

Janis Berzins, Bogdan Stacescu, Øyvind Bøhren

Series number :

Serial Number: 
540/2017

Date posted :

December 07 2017

Last revised :

December 11 2017
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Keywords

  • dividends • 
  • taxes • 
  • agency costs • 
  • shareholder conflicts • 
  • indirect ownership

We find that potential conflicts between majority and minority shareholders strongly influence how dividends respond to taxes. Examining the population of firms with proprietary microdata on all family relationships and a million individual tax returns, we utilize a large and clean regulatory shock in Norway that increases the dividend tax rate for all individuals from 0% to 28%.

We find that the dividend payout ratio drops less the higher the potential shareholder conflict. The average payout ratio falls by 30 percentage points when the conflict potential is low, but only by 18 percentage points when the conflict potential is high. We also observe a strong increase in the use of indirect ownership of high-conflict firms through tax-exempt holding companies and suggest a policy implication for intercorporate dividend taxation.

Authors

Real name:
Janis Berzins
Professor
Real name:
Bogdan Stacescu
Academic Member
BI Norwegian Business School