Uncertainty and Firm Dividend Policy

Bonnie Buchanan, Xuying Cao, Eva Liljeblom, Susan Weichrich

Research output: Chapter in Book/Report/Conference proceedingConference contributionScientificpeer-review


We examine how firms respond to uncertainty around U.S. tax policy changes, namely the individual level tax rate increases set to take effect on January 1, 2011 and January 1, 2013. We provide evidence that firms time the uncertainty in the tax environment and revise their dividend policy to an expected tax increase. We find that firms are likely to initiate their dividends or intensively increase their existing dividend amount one year before the expected tax increase. In addition, in 2012 when there is much less uncertainty on dividend tax changes than in 2010, firms are less likely to initiate a regular dividend but are more likely to initiate special dividends. The results suggest that firms facing less tax uncertainty are less likely to make long-term commitments on regular dividend payments but are more likely to take advantage of the last-minute low tax benefits by issuing special dividends. Furthermore, the response to the possible elimination of tax cut was strongest in firms with high levels of tax-affected ownership, supporting the argument that when facing policy uncertainty, firms behave to prepare for the worst scenarios, where the worst scenario in our case is a tax increase.
Original languageEnglish
Title of host publicationBehavioral Finance Working Group Conference in London, 2016
Number of pages52
Place of PublicationLondon
Publication date01.06.2016
Publication statusPublished - 01.06.2016
MoE publication typeA4 Article in conference proceedings
EventBehavioral Finance Working Group Conference 2016 - London, United Kingdom
Duration: 13.06.201614.06.2016


  • 512 Business and Management
  • Dividends
  • Tax reform
  • Payout policy


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