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Scott J Weisbenner - One of the best experts on this subject based on the ideXlab platform.
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executive financial incentives and Payout Policy firm responses to the 2003 dividend tax cut
Journal of Finance, 2007Co-Authors: Jeffrey R. Brown, Nellie Liang, Scott J WeisbennerAbstract:Using the 2003 reduction in dividend tax rates to identify an exogenous change in the after-tax value of dividends to shareholders, we test whether stock holdings among company executives is an important determinant of Payout Policy. We have three primary findings. First, we find that when top executives have greater stock ownership, and thus an incentive to increase dividends for personal liquidity reasons, there is a significantly greater likelihood of a dividend increase following the 2003 dividend tax cut, whereas no such relation existed in the prior decade when the dividend tax rate was much higher. This finding is strongest for dividend initiations, and is robust to a rich set of firm and shareholder characteristics. Second, we provide evidence that approximately one-third of the firms that initiated dividends in 2003, a higher share than in previous years, scaled back share repurchases by an amount sufficient to reduce their total Payouts. This offset potentially raised the total tax burden on shareholders at these firms because share repurchases are still tax-advantaged relative to dividends. Third, we find that while dividend-paying firms with a larger fraction of individual shareholders had greater stock price gains in response to the tax cut, the market appears to have at least partially anticipated that executives with high stock ownership might raise dividends at the expense of share repurchases and increase the average tax burden for individuals, which is consistent with the presence of agency conflicts within the firm.
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executive financial incentives and Payout Policy firm responses to the 2003 dividend tax cut
National Bureau of Economic Research, 2004Co-Authors: Jeffrey R. Brown, Nellie Liang, Scott J WeisbennerAbstract:We test whether executive stock ownership affects firm Payouts using the 2003 dividend tax cut to identify an exogenous change in the after-tax value of dividends. We find that executives with higher stock ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in previous periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.
Eun Jung Lee - One of the best experts on this subject based on the ideXlab platform.
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how corporate governance affects Payout Policy under agency problems and external financing constraints
Social Science Research Network, 2009Co-Authors: Joon Chae, Sungmin Kim, Eun Jung LeeAbstract:This paper analyzes the effect of corporate governance on the Payout Policy when a firm has both agency problems and external financing constraints. We empirically test whether strong corporate governance would lead to higher Payout to minimize agency problems (outcome hypothesis), or to lower Payout to avoid costly external financing (substitute hypothesis). We find that firms with higher (lower) external financing constraints tend to decrease (increase) Payout ratio with an improvement in their corporate governance. The results are consistent with our hypothesis that the relation between Payout and corporate governance is reversed depending on the relative sizes of agency and external financing costs.
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corporate governance and dividend Policy under external financing constraints and agency problems
Asia-pacific Journal of Financial Studies, 2008Co-Authors: Sungmin Kim, Eun Jung LeeAbstract:This paper investigates the effect of corporate governance on the dividend Policy of Korean firms when they face both agency problems and external financing constraints due to asymmetric information between corporate insiders and outside shareholders. A firm’s dividend can function as an outlet of cash flow to shareholders; dividend can, therefore, deter managers’ expropriation, by which dividend can decrease a firm’s agency problems (Easterbrook, 1984; Jensen, 1986). Also, dividend can force managers to resort to external financing in future investment projects. If the primary capital market is under-developed or experiences severe information asymmetry, dividend can increase the firm’s cost of external financing (Rozeff, 1982)). In such case, the firm has to decide its Payout Policy by considering both agency costs and external financing costs of dividends. Previous literature has mostly focused on the direct relationship between agency costs and dividend payments without explicitly considering external financing constraints. Therefore, a study on a firm’s corporate governance and dividend Policy should take into account both agency problems of dividends and firms’ external financing constraints. Extant literature argues that efficient corporate governance systems including monitoring management and shareholder protection can reduce the chance of managers facing
Kelvin Jui Keng Tan - One of the best experts on this subject based on the ideXlab platform.
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a contemporary view of corporate finance theory empirical evidence and practice
Australian Journal of Management, 2016Co-Authors: Robert W Faff, Stephen Gray, Kelvin Jui Keng TanAbstract:This article uses a survey of Australian corporate treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, Payout Policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the global financial crisis (GFC) to examine the effect of liquidity shocks on a firm’s capital structure choices. We then compare our Australian survey results with results from a comprehensive US survey conducted by Graham and Harvey. Our survey shows that the board of directors plays the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of chief executive officer (CEO) in both capital structure and cash holding decisions. In addition, our respondents do not view the tax advantage o...
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a contemporary view of corporate finance theory empirical evidence and practice
2016Co-Authors: Robert W Faff, Stephen Gray, Kelvin Jui Keng TanAbstract:This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, Payout Policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm’s capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011-2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.
Roni Michaely - One of the best experts on this subject based on the ideXlab platform.
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Taxation and Dividend Policy: The Muting Effect of Diverse Ownership Structure
2020Co-Authors: Martin Jacob, Roni Michaely, Annette AlstadsaeterAbstract:ABSTRACT Policymakers frequently try to use dividend tax changes to affect Payout Policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using identification strategy that exploits a large exogenous shock to dividend taxation and comprehensive proprietary data on ownership structure and owners' tax preference, we show that absent of conflicting objectives between managers and owners, dividend taxation has a large effect on Payouts. The impact becomes insignificant as the number of owners increases. Differential tax preferences across owners is one factor. However, even when owners have the same tax preferences, disperse ownership significantly reduces the impact of dividend taxation; plausibly due to coordination problems across owners and conflicting objectives of owners and managers. Our results explain why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on Payout Policy, but disperse ownership mutes its impact substantially
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the effect of the may 2003 dividend tax cut on corporate dividend Policy empirical and survey evidence
National Tax Journal, 2008Co-Authors: Alon Brav, Campbell R Harvey, John R Graham, Roni MichaelyAbstract:We analyze the impact of the May 2003 dividend tax cut on corporate dividend Policy. First, we find that while there was a temporary increase in dividend initiations, this increase was not long–lasting. While dividend payments were increased right after the tax change, there was a larger and more pronounced increase in repurchases during the same time period. Second, we survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend Policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation. Overall we conclude that the dividend tax reduction had only a second–order impact of Payout Policy.
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corporate Payout Policy and product market competition
2007Co-Authors: Gustavo Grullon, Roni MichaelyAbstract:This paper investigates whether product market competition affects managers' decision to distribute cash to shareholders. Using a large sample of manufacturing firms, we find that firms in less competitive industries have significantly lower Payout ratios than firms in more competitive markets. Further, we find that this negative relation between industry concentration levels and corporate Payouts is much stronger among those firms whose overall characteristics make them (a) more likely to have high agency costs of free cash flows and (b) less likely to be the target of predation. In general, our results are consistent with the notion that the disciplinary forces of competition induce managers to Payout excess cash and with the idea that corporate Payouts are the "outcome" of external factors.
Nellie Liang - One of the best experts on this subject based on the ideXlab platform.
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executive financial incentives and Payout Policy firm responses to the 2003 dividend tax cut
Journal of Finance, 2007Co-Authors: Jeffrey R. Brown, Nellie Liang, Scott J WeisbennerAbstract:Using the 2003 reduction in dividend tax rates to identify an exogenous change in the after-tax value of dividends to shareholders, we test whether stock holdings among company executives is an important determinant of Payout Policy. We have three primary findings. First, we find that when top executives have greater stock ownership, and thus an incentive to increase dividends for personal liquidity reasons, there is a significantly greater likelihood of a dividend increase following the 2003 dividend tax cut, whereas no such relation existed in the prior decade when the dividend tax rate was much higher. This finding is strongest for dividend initiations, and is robust to a rich set of firm and shareholder characteristics. Second, we provide evidence that approximately one-third of the firms that initiated dividends in 2003, a higher share than in previous years, scaled back share repurchases by an amount sufficient to reduce their total Payouts. This offset potentially raised the total tax burden on shareholders at these firms because share repurchases are still tax-advantaged relative to dividends. Third, we find that while dividend-paying firms with a larger fraction of individual shareholders had greater stock price gains in response to the tax cut, the market appears to have at least partially anticipated that executives with high stock ownership might raise dividends at the expense of share repurchases and increase the average tax burden for individuals, which is consistent with the presence of agency conflicts within the firm.
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how did the 2003 dividend tax cut affect stock prices and corporate Payout Policy
Social Science Research Network, 2005Co-Authors: Gene Amromin, Nellie Liang, Paul Harrison, Steven A SharpeAbstract:We examine the effects of the 2003 dividend tax cut on U.S. stock prices and corporate Payout policies. First, using an event-study methodology, we compare the performance of U.S. stocks to that of other securities that should not have benefited from the tax change. We find that U.S. large-cap and small-cap indexes do not outperform their European counterparts, nor REIT stocks, over the event windows, suggesting little if any aggregate stock market effect from the tax change. In cross-sectional analysis, high-dividend stocks outperformed low-dividend stocks by a few percentage points over the event windows. On the other hand, non-dividend paying stocks are found to have outperformed the overall market by a small margin, but this result does not appear specific to the event windows, suggesting that non-tax factors were at play. Second, the tax change did appear to induce an increase in dividends, especially at firms where executive compensation was weighted more heavily toward stock than options. However, the effect on total Payouts was more muted, as many firms scaled back share repurchases.
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executive financial incentives and Payout Policy firm responses to the 2003 dividend tax cut
National Bureau of Economic Research, 2004Co-Authors: Jeffrey R. Brown, Nellie Liang, Scott J WeisbennerAbstract:We test whether executive stock ownership affects firm Payouts using the 2003 dividend tax cut to identify an exogenous change in the after-tax value of dividends. We find that executives with higher stock ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in previous periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.
