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Managerial Ability and the Shareholder Tax Sensitivity of Dividends

  • Jenny Xinjiao Guan, Oliver Zhen Li and Jiameng Ma
  • Please note a correction has been issued for this article.
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.

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Corresponding author
* Guan, guan.xinjiao@u.nus.edu, National University of Singapore Business School; Li (corresponding author), bizzhenl@nus.edu.sg, National University of Singapore Business School and Shanghai Lixin University of Accounting and Finance; and Ma, jiameng.ma12@u.nus.edu, Shanghai University School of Management.
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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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References
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A correction has been issued for this article: