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 pages38
DOIs
Publication statusPublished - 2012
EventThe 10th International Paris December Finance Meeting - Paris, France
Duration: 20 Dec 201220 Dec 2012
Conference number: 10
https://www.eurofidai.org/en/december_2012.html

Conference

ConferenceThe 10th International Paris December Finance Meeting
Number10
CountryFrance
CityParis
Period20/12/201220/12/2012
Internet address

Cite this

Lai, T., & Ng, T. (2012). Which Types of Firms React More to a Tax Cut? Evidence from the 2003 Dividend Tax Cut. Paper presented at The 10th International Paris December Finance Meeting, Paris, France. https://doi.org/10.2139/ssrn.2081946
Lai, Tat-kei ; Ng, Travis . / Which Types of Firms React More to a Tax Cut? Evidence from the 2003 Dividend Tax Cut. Paper presented at The 10th International Paris December Finance Meeting, Paris, France.38 p.
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Lai, T & Ng, T 2012, 'Which Types of Firms React More to a Tax Cut? Evidence from the 2003 Dividend Tax Cut' Paper presented at, Paris, France, 20/12/2012 - 20/12/2012, . https://doi.org/10.2139/ssrn.2081946

Which Types of Firms React More to a Tax Cut? Evidence from the 2003 Dividend Tax Cut. / Lai, Tat-kei; Ng, Travis .

2012. Paper presented at The 10th International Paris December Finance Meeting, Paris, France.

Research output: Contribution to conferencePaperResearchpeer-review

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AB - 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.

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Lai T, Ng T. Which Types of Firms React More to a Tax Cut? Evidence from the 2003 Dividend Tax Cut. 2012. Paper presented at The 10th International Paris December Finance Meeting, Paris, France. https://doi.org/10.2139/ssrn.2081946