Disciplined Managers, Rewarded Firms: Agency Costs and Dividend Taxation

Disciplined Managers, Rewarded Firms: Agency Costs and Dividend Taxation

• Autor
• Eduardo Kazuo Kayo
• Co-autores
• Roy Martelanc
• Resumo

• We examine the stock market reaction to the approval of dividend taxation in Brazil and its relationship with firms’ payout policies. We document that firms increase dividend payments before the implementation of taxation, consistent with an intertemporal shifting mechanism. The approval of dividend taxation generates a positive and statistically significant stock market reaction. We show that this effect is heterogeneous across firms and is significantly stronger among those with higher payout policies. Using a two-sample instrumental variables approach, we provide evidence of a causal effect of payout on stock market reactions. Our results are consistent with an agency-based interpretation: higher payouts reduce free cash flow and mitigate agency costs, leading to more favorable market reactions. Overall, our findings highlight that the effects of dividend taxation depend not only on tax rates but also on firms’ ability to adjust payout decisions intertemporally, with important implications for corporate governance and firm value.

• Palavras-chave
• Dividend, tax reform, agency theory, payout
• Modalidade
• Comunicação oral
• Área Temática
• Finanças Corporativas e Bancárias

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