Working Paper: NBER ID: w11002
Authors: jeffrey r brown; nellie liang; scott weisbenner
Abstract: 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.
Keywords: dividend tax cut; executive stock ownership; firm payouts
JEL Codes: g32; g35; h24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| executive stock ownership (G34) | likelihood of firms increasing dividends after the 2003 tax cut (G35) |
| variation in executive share ownership (G34) | total unexpected increase in dividends after the tax cut (G35) |
| variation in executive share ownership (G34) | dividend initiations (G35) |
| dividend increases (G35) | reduction in share repurchases (G34) |
| executive stock ownership (G34) | total payouts (G35) |
| 2003 tax cut (H20) | new incentive structure for executive stock ownership and dividend increases (G34) |