Publications
Publications
- April 2011
- Journal of Financial Economics
Institutional Tax Clienteles and Payout Policy
By: Mihir Desai and Li Jin
Abstract
This paper employs heterogeneity in institutional shareholder tax characteristics to identify the relation between firm payout policy and tax incentives. Analysis of a panel of firms matched with the tax characteristics of the clients of their institutional shareholders indicates that "dividend-averse" institutions are significantly less likely to hold shares in firms with larger dividend payouts. This relation between the tax preferences of institutional shareholders and firm payout policy may reflect dividend-averse institutions gravitating towards low dividend paying firms or managers adapting their payout policies to the interests of their institutional shareholders. Evidence is provided that both effects are operative. Plausibly exogenous changes in payout policy result in shifting institutional ownership patterns. Similarly, exogenous changes in the tax cost of institutional investors receiving dividends results in changes in firm dividend policy.
Keywords
Institutional Investors; Clienteles; Payout Policy; Private Equity; Investment; Taxation; Ownership Stake; Business and Shareholder Relations
Citation
Desai, Mihir, and Li Jin. "Institutional Tax Clienteles and Payout Policy." Journal of Financial Economics 100, no. 1 (April 2011): 68–84.