Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Katarzyna A. Bilicka; Irem Guceri; Evangelos Koumanakos

doi:10.3386/w30808

Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Katarzyna A. Bilicka, Irem Guceri & Evangelos Koumanakos

Working Paper 30808

DOI 10.3386/w30808

Issue Date December 2022

We analyze the short and long-run performance of firms that were differentially affected by a new tax on dividends in the lead-up to the Global Financial Crisis. We use exogenous policy variation for firms with different legal statuses and financial year-end dates to causally identify the policy impact. Consistent with intertemporal tax arbitrage, immediately-affected firms significantly reduce payouts. At a time of severe liquidity shortage, the average firm uses the undistributed cash to pay back debt. In the long run, the allocation of undistributed cash to investment, retained earnings, and debt repayment predicts growth and the likelihood of bankruptcy.

We would like to thank Kristoffer Berg, Steve Bond, Will Boning, Pierre Boyer, Antoine Bozio, Michael Devereux, Arthur Guillouzouic, Todd Griffith, Matt Jaremski, Aija Leiponen, Clement Malgouyres, Adrien Matray, Jakob Miethe, Sarah Wolfolds, and Eddy Zanoutene for their comments. We would also like to thank seminar participants at Cornell, Manchester, NHH, Oxford University Center for Business Taxation, and Utah State University and conference participants at CESifo Public Economics week, ZEW Public Finance conference, CESifo Public Economics conference, and the IIPF congress for their helpful suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Irem Guceri is grateful to the British Academy and the Oxford University John Fell Fund for financial support.
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Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

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