Executive financial incentives and payout policy: Firm responses to the 2003 dividend tax cut

Research output: Contribution to journalArticle


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 ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in 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.

Original languageEnglish (US)
Pages (from-to)1935-1965
Number of pages31
JournalJournal of Finance
Issue number4
StatePublished - Aug 1 2007


ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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