Tax Concerns and Agency Concerns in Dividend Policy

The Efficiency Costs of Dividend Taxation with Managerial Firms

“…The model builds on the general insight that managerial effort determines the way in which inputs are combined in production and thereby the effectiveness of other inputs such as physical in- 1 In a related manner, Jacob et al (2015) show that the sensitivity of dividend policy to owners' tax preferences phases out as the number of owners increases, suggesting that managers pursue private agendas different to satisfying shareholder interests as ownership becomes more dispersed. Exploiting the 2006 rise in dividend taxes in Norway, Berzins et al (2014) find a strong negative effect of dividend taxes on pay-outs, and that a pre-existing agency conflict between shareholders and the management moderates the tax effect.…”

Capital Structure of Surviving Family Firm in Malaysia

“…Past literature review about family companies normally only emphasize on performance related subjects (Villalonga and Amit, 2006;Miller et al, 2007;Silva and Majluf, 2008;). On the other hand, it has been discussed that family companies are more financial restrained than non-family companies because they have advantages to maintain the controlling status of the family and might be refused to issue equity to investors as outsider (Berzins et al, 2013). Furthermore, followed by Anderson and Reeb (2003), they also examine whether family companies have better concentrated ownership structure or not possesses control over the power, and this trait makes it extra complex to obtain minority investment from outsiders.…”

The Efficiency Costs of Dividend Taxation with Managerial Firms*

“…The production function is stochastic F (I, e) = f (I, e) + ε with ε ∼ N (0, σ 2 ). 11 Production depends on investment I and on managerial effort choices e, and satisfies f I , f e > 0, f II , f ee < 0 and f Ie 0. 12 The cross derivative might capture different ways in which managerial effort interacts with physical investments.…”

“…15 For instance, when h(e, I) is additive, the production function is f (I + e), which implies f Ie < 0. The capital-augmenting view of managerial effort might apply when stricter managerial supervision (and thus higher effort) of the selection and implementation of 11 To save on notation, we implicitly assume that the distribution of ε is such that realized profits are nonnegative.…”

“…A higher tax rate influences the incentive effect of a higher α on effort provision, c.f. the first term in curly brackets in (11). 21 The impact on the sharing rate depends on how the incentive effect of equity-based compensation, as measured in output units f e de/dα, varies with the tax rate, which is ambiguous in sign.…”