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

Brown, Jeffrey R.; Liang, Nellie; Weisbenner, Scott J.

doi:10.1111/j.1540-6261.2007.01261.x

Cited by 259 publications

(155 citation statements)

References 41 publications

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“…Dividends tend to be persistent (Goncharov & van Triest 2011;Moser 2007) and PD controls for the change in dividend per share of the previous year. A number of studies found that shares held by employees affect the likelihood that dividends will be paid (Brown, Liang & Weisbenner 2007;Minnick & Rosenthal 2014). Consequently, the model controls for the percentage of common shares held by employees (EMP).…”

Section: Methodsmentioning

confidence: 99%

Tax preferences, dividends and lobbying for maximum value

Badenhorst

2017

SAJEMS

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Background: The value of equity investments depends to some extent on the tax consequences for investors. When groups of investors have different tax preferences, this can lead to conflicting pressures on firms to either retain earnings or pay dividends. The findings of this study will be of interest to researchers of taxation and corporate governance alike, as they highlight the role that corporate shareholders play in the decisions of the firm. Investors and regulators will also be interested in the findings as they reveal more about the interaction between shareholders with conflicting interests. Lastly, changes in behaviour as a result of changes in tax legislation are of interest to those with fiscal responsibility.Setting: A 2012 dividend tax change in South Africa, which simultaneously altered the tax preferences of individual and corporate investors, provides a unique opportunity to investigate firms’ reaction to their investors’ tax preferences.Aim: This article seeks to determine whether firms respond to changes in their investors’ tax preferences in their decisions to either retain earnings or pay dividends.Method: The article investigates the responses of firms to the 2012 dividend tax change using multivariate regressions.Results: Findings show that firms consider changes in the tax preferences of their investors in setting dividend policies. In addition, it appears that corporates have greater success in lobbying for beneficial dividend changes than individuals.Conclusion: Changes in investors’ tax preferences impact on firms’ dividend policy decisions. These decisions ultimately affect the value of the firm to its investors

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Section: Methodsmentioning

confidence: 99%

Tax preferences, dividends and lobbying for maximum value

Badenhorst

2017

SAJEMS

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“…e.g. Lie and Lie (1999), Fenn and Liang (2001), Perez-Gonzalez (2002), Graham and Kumar (2006), Brown et al (2007), Barclay et al (forthcoming) and Hsieh and Wang (2008)). Since Germany underwent a major tax reform in the year 2001 (cf.…”

Section: Tax Regime Effectsmentioning

confidence: 99%

Controlling Shareholders and Payout Policy: Do Founding Families Have a Special 'Taste for Dividends'?

et al. 2010

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Around the world (with the U.S. and U.K. as exceptions) concentrated ownership structures and controlling shareholders are predominant even among listed firms. We provide novel empirical evidence how such controlling shareholders, in particular founding families, affect payout policy decisions. Thereby, we use a unique panel dataset of 660 listed firms in the 1995 to 2006 period from Germany, an economy that is traditionally characterized by concentrated ownership structures and strong family capitalism. We find that family firms exhibit a higher propensity and level for both dividend payments and total payouts. This result is driven by family ownership rather than family management. Conflicts between the founding family and non-family controlling shareholders and tensions within the founding family are important determinants of payout policy. While family blockholder increase the propensity for a payout to shareholders, outside blockholder have an opposing effect. Finally, we find that common action problems and conflicts among a multitude of family members and/or generations in "real family firms" lead to a higher "taste for dividend payments" if compared to firms dominated by the founder ("founder-controlled firms"). Our results prove to be stable against a battery of robustness tests including a matching estimator technique to demonstrate causal effects. Overall, our paper contributes to two strands of literature: the emerging literature on family firms and the more mature literature on corporate payout policy. Terms of use: Documents in JEL Classification: G 32, G 34

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“…For example, Core and Larcker () examine a sample of firms adopting ‘target ownership plans’ and find that the required increases in managerial ownership lead to improvements in the firm's operating performance. Fenn and Liang () and Brown et al () find that executives with higher ownership are more likely to increase dividends, but Fenn and Liang () also show that management stock options are negatively (positively) related to dividends (repurchases). Denis et al () suggest that managerial ownership creates incentives for managers to pursue value‐increasing investments and therefore constrains business diversification and avoids value destruction.…”

Section: Empirical Evidence On Executive Compensationmentioning

confidence: 99%

“…While one may interpret this evidence as empirical validity of the widespread misuse of CEO compensation, an alternative is that the endogeneity of compensation arrangements makes it extremely difficult to interpret any observed relation between CEO compensation and corporate outcomes as evidence of a causal effect. A response to such a challenge in recent research is to identify a natural experiment, such as a regulatory change and unexpected ‘shock’ to the economy (see, for example, Brown et al , ; Gormley et al , ).…”

Section: Empirical Evidence On Executive Compensationmentioning

confidence: 99%

Towards a Set of Design Principles for Executive Compensation Contracts

Shan

Walter

2016

Abacus

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Executive compensation has been controversial for many years. Controversies over executive pay have sparked outrage from some sectors and calls for increased regulation and reform. Yet others argue that knee-jerk reactions to perceived abuses of pay can lead to a host of unintended and inefficient outcomes. This paper argues that much of this controversy is due to executives being rewarded via contracts that have weaknesses in design. We argue that few stakeholders in firms would object to generous compensation for managers whose performance results in abnormally high long-term shareholder wealth creation. We state a set of principles, developed from a review of the extensive theoretical, regulatory, and empirical literature, that we offer as fundamental building blocks for designing executive remuneration systems in public firms, especially where ownership and control are separated. Our purpose is to generate broad debate and discussion leading to a consensus as to the principles that should be present in all executive compensation contracts such that the interests of shareholders and managers are more closely aligned.CEO compensation is controversial. While some examples of CEO misbehaviour are quite recent and thus well-remembered, 1 Murphy (2013) demonstrates that CEO pay was controversial in the US even before the Great Depression of the 1930s, while Frydman and Sacks (2010) provide historical comparisons of median CEO pay relative to an average worker for the period 1936-2005. CEOs of public companies are routinely perceived to be overpaid and their boards are perceived to provide poor monitoring and control of powerful executives. There are three elements to these complaints (Kaplan, 2013): (a) CEOs are overpaid and their pay keeps increasing; (b) CEO pay is not linked to performance; and (c) corporate boards are ineffective monitors. Bebchuk and Fried (2005, p. 2)

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

Cited by 259 publications

References 41 publications

Tax preferences, dividends and lobbying for maximum value

Tax preferences, dividends and lobbying for maximum value

Controlling Shareholders and Payout Policy: Do Founding Families Have a Special 'Taste for Dividends'?

Towards a Set of Design Principles for Executive Compensation Contracts

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