Tax Uncertainty and Dividend Payouts

Publication: Working/Discussion PaperWU Working Paper

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Abstract

I examine whether and to what extent tax uncertainty affects a firm's dividend payouts. Based on the argument that tax uncertainty impairs the persistence and predictability of after-tax cash flows, I hypothesize and find that firms with greater tax uncertainty exhibit a lower probability of dividend payouts. The effect of tax uncertainty is stronger in the presence of financial constraints and weaker for firms that distribute dividends to alleviate agency conflicts. Furthermore, I find a negative effect of tax uncertainty on dividend levels, which is moderated by the costs of dividend reductions. These results are economically meaningful as a one standard deviation higher tax uncertainty leads to a 9.9 percentage point lower probability and a $23.6 million reduction in dividend payouts. Taken together, my findings document a real effect of tax avoidance and contribute to the understanding of interactions between uncertain tax avoidance and a firm's financial ecosystem.
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 27 Mar 2017

Publication series

NameWU International Taxation Research Paper Series
No.2017-04

WU Working Paper Series

  • WU International Taxation Research Paper Series

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