Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

Topics:
Dividends
Tags:
Dividend,
Dividend Tax,
Finance,
Financial,
Financial Accounting,
Financial Planning
Source:
National Bureau of Economic Research

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Overview: Using the 2003 reduction in dividend tax rates to identify an exogenous change in the after-tax value of dividends to shareholders, this paper tests whether the composition of executives' stock and option holdings is an important determinant of payout policy. It finds that when top executives have greater stock ownership, and thus have the incentive to increase dividends for 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.

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Format: PDF | Size: 357KB | Date: Dec 2004 | Pages: 65

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