Shareholder Taxes and Corporate Payout Policy: Evidence from SALT Deductibility
Higher state individual income taxation predicts a decreased proclivity for firms to pay dividends because shareholders can mitigate capital gains taxation from repurchases through timing and relocation. Using a novel experiment exploiting reforms to state and local tax (SALT) deductibility, this paper’s difference-in-differences estimates show the proclivity of firms to pay dividends decreases with higher state taxation. The decreased proclivity concentrates both in firms with high insider ownership, where managerial incentives are greater, and in firms with especially high institutional ownership, where monitoring incentives are lower. Consistent with expectations, the observed patterns are not present for repurchases.
dividends, stock repurchases, payout policy, state taxation
SMU Cox: Finance (Topic)