Which Types of Firms React More to a Tax Cut? Evidence from the 2003 Dividend Tax Cut

Tat-kei Lai, Travis Ng

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

The agency model of Chetty and Saez (2010) predicts that firms with stronger corporate governance are more responsive to a dividend tax cut in their dividend and investment policies. We test these predictions by exploiting the sudden and significant dividend tax cut following the Jobs and Growth Tax Relief Reconciliation Act of 2003 and the pre-tax cut variation in corporate
governance standards across firms. We find that firms with stronger corporate governance raise dividends and reduce investment in response to the tax cut significantly more than firms with weaker corporate governance. These differential reactions come from differences in corporate governance standards but not differences in ownership concentration ratios.
Original languageEnglish
Publication date2012
Number of pages37
Publication statusPublished - 2012
EventThe 24th Annual Conference of the Northern Finance Association. NFA 2012 - Niagara Falls, Ontario, Canada
Duration: 28 Oct 201230 Oct 2012
Conference number: 24
http://northernfinance2012.org

Conference

ConferenceThe 24th Annual Conference of the Northern Finance Association. NFA 2012
Number24
Country/TerritoryCanada
CityNiagara Falls, Ontario
Period28/10/201230/10/2012
Internet address

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