Taxes and Company Dividends: A Microeconometric Investigation Exploiting Cross-Section Variation in Taxes

Bond, Stephen R.; Chennells, Lucy; Devereux, Michael

doi:10.2307/2235249

Cited by 40 publications

(28 citation statements)

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“…We estimate the eects of EQT applying a dierence-in-dierences method commonly used in policy evaluation studies and utilizing unique micro data including information on the tax returns of all Finnish businesses. Consistent with our theoretical Bond et al, 1996). We also nd that the eect is largest among parents with the highest incentive to increase dividend payments due to the reform.…”

Section: Discussionsupporting

confidence: 87%

“…Our results are similar to those reported by studies closest to the questions we are interested in (Bond et al (1996(Bond et al ( , 2007). The result of no investment response is in fact consistent with our theoretical model when the MNE is able to fully avoid EQT either by prot-shifting or by deferring repatriations.…”

supporting

confidence: 92%

“…The articles by Bond, Chennells and Devereux (1996), and Bond, Devereux and Klemm (2007) on the eects of the UK imputation system are closest to the questions examined in this paper. Both nd changes in dividend distribution, but no eects on investment.…”

mentioning

confidence: 87%

“…8 Two comparable later decisions were: in the Fokus case, the EFTA court decided that Norway must extend its imputation credit to foreign shareholders (EFTA case E-1/04, judgement on November 23, 2004). In the Meilicke case, the ECJ ruled in line with the Manninen decision that imputation credit must be given to foreign-source dividends (Case C-292/04, judgment given on March 6, 2007).…”

mentioning

confidence: 99%

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Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform

Harju

Kari²

2016

CESifo Economic Studies

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In this study we explore how a firm-level dividend tax on redistributed foreign profits affects the financial decisions of a multinational enterprise (MNE). We examine this by using evidence from a recent tax reform in Finland. The so-called equalization tax (EQT) used to be a regular element of European imputation systems, designed to ensure that dividends were not paid out of untaxed profits. Theoretical analyses have suggested that EQT may distort several financial decisions of MNEs. We find a 23 percent increase in dividend payments and a similar increase in repatriated foreign profits after the repeal of EQT among Finnish MNEs. We also find evidence that the reported profits increased among foreign subsidiaries of Finnish MNEs, which indicates an effect on profit-shifting. No change in investment was detected. Terms of use: Documents inJEL-Codes: H250, F230, H320.

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Section: Discussionsupporting

confidence: 87%

supporting

confidence: 92%

mentioning

confidence: 87%

mentioning

confidence: 99%

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Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform

Harju

Kari²

2016

CESifo Economic Studies

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“…While the impact of the voting power of shareholders' coalitions on payout ratios is found to be always negative, the magnitude of this effect differs across different categories of block holders (i.e. industrial firms, outside individuals, 5 For the UK, Bond et al (1996), Lasfer (1996), Bell and Jenkinson (2002), Short et al (2002), Farinha (2003), Lasfer and Zenonos (2003), Correia da Silva et al (2004) analyze dividend policy only, while Rau and Vermaelen (2002) and Oswald and Young (2004) focus exclusively on factors determining repurchase decisions. 4 directors, financial institutions).…”

mentioning

confidence: 99%

Control Structures and Payout Policy

Trojanowski

Renneboog

2005

SSRN Journal

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This paper examines the payout policies of UK firms listed on the London Stock Exchange during the 1990s. It complements the existing literature by analyzing the trends in both dividends and total payouts (including share repurchases). In a dynamic panel data regression setting, we relate target payout ratios to control structure variables.Profitability drives payout decisions of the UK companies, but the presence of strong block holders or block holder coalitions considerably weakens the relationship between corporate earnings and payout dynamics. While the impact of the voting power of shareholders' coalitions on payout ratios is found to be always negative, the magnitude of this effect differs across different categories of block holders (i.e. industrial firms, outside individuals, directors, financial institutions). The controlling shareholders appear to trade off the agency problems of free cash flow against the risk of underinvestment, and try to enforce payout policies that optimally balance these two costs. Finally, the paper improves upon some methodological flaws of the recent empirical studies of payout policy. . In a dynamic panel data regression setting, we relate target payout ratios to control structure variables.Profitability drives payout decisions of the UK companies, but the presence of strong block holders or block holder coalitions considerably weakens the relationship between corporate earnings and payout dynamics. While the impact of the voting power of shareholders' coalitions (measured by Banzhaf power indices) on payout ratios is found to be always negative, the magnitude of this effect differs across different categories of block holders (i.e. industrial firms, outside individuals, directors, financial institutions). The controlling shareholders appear to trade off the agency problems of free cash flow against the risk of underinvestment, and try to enforce payout policies that optimally balance these two costs. Finally, the paper improves upon some methodological flaws of the recent empirical studies of payout policy.JEL classification: G35, G32, G30.

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