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Managerial Ability and the Shareholder Tax Sensitivity of Dividends

  • Jenny Xinjiao Guan, Oliver Zhen Li and Jiameng Ma

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.

Corresponding author
* Guan,, Ma,, National University of Singapore Business School; and Li (corresponding author),, National University of Singapore Business School and Shanghai Lixin University of Accounting and Finance.
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We thank Jarrad Harford (the editor) and Martin Jacob (the referee) for comments and suggestions.

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