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  5. Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

American Economic Journal:
Economic Policy

ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)

Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

  • Katarzyna Bilicka
  • İrem Güçeri
  • Evangelos Koumanakos
American Economic Journal: Economic Policy (Forthcoming)

Abstract

We analyze the performance of firms that were differentially affected by an unexpected tax on dividends before the Global Financial Crisis. We use exogenous policy variation for firms with different legal statuses and financial year-end dates to separately identify the policy announcement and implementation effects. We provide causal evidence for a sharp drop in dividends, but zero change in equipment purchases. Treated firms accumulate investment goods that are likely to be owner-manager’s personal assets instead of productive capital. At a time of severe liquidity shortage, some of the funds kept in the firm are used to pay back short-term debt.

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