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Managerial Ability and the Shareholder Tax Sensitivity of Dividends

Published online by Cambridge University Press:  30 January 2018

Jenny Xinjiao Guan ,
Oliver Zhen Li  and
Jiameng Ma
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Abstract

We examine the impact of managerial ability on the shareholder tax sensitivity of dividends. We find that managerial ability increases the sensitivity of dividends to the dividend tax penalty. In addition, the positive association between managerial ability and the shareholder tax sensitivity of dividends decreases in institutional ownership. Further, managerial ability increases the shareholder tax sensitivity of the substitution of dividends with share repurchases. Finally, evidence from tax reforms reveals that high ability managers are more responsive to a reduction in dividend tax penalty than to an increase. We conclude that managerial ability influences the formation of tax-efficient dividend policies.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 1 , February 2018 , pp. 335 - 364
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank Jarrad Harford (the editor) and Martin Jacob (the referee) for comments and suggestions. An error in this article has been corrected; please see doi:10.1017/S0022109018000339.

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