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Political affiliation and dividend tax avoidance: Evidence from the 2013 fiscal cliff

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  • Peyer, Urs
  • Vermaelen, Theo

Abstract

This paper uses the 2013 fiscal cliff as a natural experiment to examine how the political affiliation of the CEO affects a firm's response to an expected increase in personal taxes on dividends. Firms could avoid such additional taxes by paying extra dividends and accelerating dividends in the last 2months of 2012. These tax avoiders are compared with a sample of firms that did not accelerate the payment of their first quarterly dividend from the first 3months of 2013 to November or December 2012 (the deliberate taxpayers). Ceteris paribus, Republican CEOs are more likely to help their investors to save money on personal income taxes. However, the political affiliation has explanatory power in addition to previously documented effects (Hanlon and Hoopes, 2014), such as the consequences for the CEO's personal wealth as well as the percentage of insider holdings. Reputational concerns about “avoiding taxes for the rich” as well as corporate governance quality are also significant determinants of corporate behavior.

Suggested Citation

  • Peyer, Urs & Vermaelen, Theo, 2016. "Political affiliation and dividend tax avoidance: Evidence from the 2013 fiscal cliff," Journal of Empirical Finance, Elsevier, vol. 35(C), pages 136-149.
    • Handle: RePEc:eee:empfin:v:35:y:2016:i:c:p:136-149
    DOI: 10.1016/j.jempfin.2015.10.009
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    References listed on IDEAS

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    Cited by:

    1. KangYoung Lee & SungMan Yoon, 2020. "Managerial Ability and Tax Planning: Trade-Off between Tax and Nontax Costs," Sustainability, MDPI, vol. 12(1), pages 1-13, January.
    2. Lin, Xiaowei & Huang, Hung-Yi & Lee, Yun-Chi, 2023. "Proxy solicitation, ownership structure, and bank cash dividends," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 15-23.
    3. Wu, Manhwa & Ni, Yensen & Huang, Paoyu, 2020. "Dividend payouts and family-controlled firms—The effect of culture on business," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 221-228.
    4. Ed-Dafali, Slimane & Patel, Ritesh & Iqbal, Najaf, 2023. "A bibliometric review of dividend policy literature," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Dividend policy; Taxes; Politics; Finance;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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