Does Dividend Taxation Affect Voluntary Disclosure? International Evidence

This study examines how dividend taxation affects corporate voluntary disclosure. Using a sample of firms in 32 OECD countries from 2001 to 2017, our difference-in-differences regressions find that higher dividend tax rates reduce both the issuance and the frequency of management forecasts. The decreases are more pronounced when governance is weaker or agency problems are potentially more severe. Also, the effect of dividend tax rates on management forecasts is asymmetric. That is, tax cuts increase management forecasts, but tax hikes do not decrease management forecasts. In addition, the change in management forecasting behavior following dividend tax changes significantly affects firms’ cost of equity and stock market liquidity. Overall, our findings are consistent with the prediction of the agency theory framework that dividend taxation negatively affects corporate voluntary disclosure behavior.