How Does Dividend Tax Affect Corporate Investment: A Research Based on Differentiated Dividend Tax Policy
MA Guangrong, YIN Haoru, ZHAO Yaohong
School of Finance / China Financial Policy Research Center, Renmin University of China; School of Government, University of International Business and Economic
Summary:
Dividend tax is a core tax category levied on capital income within the framework of individual income tax, occupying a significant position in the current tax structure of China. However, there has been a long-standing debate over how dividends should be taxed, as it involves a stark equity-efficiency trade-off. On the one hand, property income such as dividends, accounts for a large portion of the income of high-income groups. Taxing dividends could help regulate income distribution. On the other hand, dividend taxation may lead to substantial efficiency losses, primarily manifested in investment. Since investors' net returns were reduced, dividend taxes may reduce investment and distort resource allocation. In view of this trade-off, it is essential to know the impact of dividend taxation on corporate behavior, especially on corporate investment behavior. However, how dividend taxation affects companies' real activities has been controversial in public finance. What exactly is the impact of dividend tax rate changes on the investment behavior of Chinese firms？ This remains an open empirical question. This paper investigates this issue by examining the differentiated dividend tax reform implemented in China in 2013. Prior to the reform, individual investors of listed firms were subject to a uniform dividend tax rate of 10%. In this reform, however, China linked the dividend tax rate for individual investors to the duration of their shareholding, raising the dividend tax rate for short-term investments within one month and lowering the dividend tax rate for long-term investments over one year. As a result, although all listed firms were affected by the reform, the extent of the impact varied between firms with different investor structures, which allows us to employ a continuous difference-in-difference method to identify the causal relationship between dividend tax and corporate investment strategies. Using China A-share listed firms from 2011-2015 as the sample, this paper finds that changes in dividend taxes do not have a significant impact on firms' average investment. However, listed firms exhibit heterogeneous investment responses to an increase in dividend tax rate based on their varying levels of cash abundance. A higher dividend tax rate exacerbates the agency problem between managers and shareholders, leading to more unproductive investments by cash-rich firms. At the same time, cash-constrained firms reduce productive investments due to the rising cost of capital. This means that higher dividend tax rates lead to a shift in investment from higher-return investments in cash-constrained firms to lower-return investments in cash-rich firms, thereby reducing the efficiency of resource allocation. The research findings in this paper have important implications for deepening tax system reform and optimizing investment structure. Noting that dividend tax is a crucial factor affecting investment structure and efficiency, the appropriate reduction of dividend tax rates, coupled with the coordination and integration of corporate income tax and individual income tax, would represent crucial tax reform directions that effectively balance high-quality development and common prosperity. Possible contributions of this article are as follows. First, in terms of research perspective, while some literature has discussed the impact of China's differentiated dividend tax policy on other behavioral decisions such as corporate payout policies, no study has separately examined its effect on corporate investment decisions. This study contributes to a deeper understanding of the policy effects of China's dividend tax reform, which is of great importance for the improvement of China's tax system. Second, in terms of empirical identification, the differentiated dividend tax reform results in different investors' average dividend tax rates for listed firms with different investor structures, forming a natural grouping. This enables us to only use data from listed firms while identifying the impact of dividend tax on corporate investment, avoiding potential endogeneity issues that may arise when using firms with different organizational forms (e.g. non-listed firms) as the control groups, which thereby enhances the reliability of research conclusions. Third, in terms of content, this study examines the impact of dividend tax on corporate average investment, investment allocation, and investment efficiency under a new scenario of China, a developing country, providing new insights into the ongoing debate surrounding dividend tax. Moreover, unlike recent literature that primarily focuses on non-listed firms, this study addresses the issue within the sample of modern listed firms, where agency conflicts are more pronounced due to diffuse ownership. This should help deepen the understanding of the investment effect of dividend taxation in academia.
马光荣, 尹浩儒, 赵耀红. 股利税如何影响企业投资？——基于差别化股利税政策的研究[J]. 金融研究, 2025, 545(11): 133-151.
MA Guangrong, YIN Haoru, ZHAO Yaohong. How Does Dividend Tax Affect Corporate Investment: A Research Based on Differentiated Dividend Tax Policy. Journal of Financial Research, 2025, 545(11): 133-151.
[1]陈冬华、陈信元和万华林,2005,《国有企业中的薪酬管制与在职消费》,《经济研究》第2期,第92～101页。 [2]贾凡胜和李广众,2023,《第一大股东干预分红就是“掏空”吗？》,《管理科学学报》第4期,第209～226页。 [3]贾凡胜、吴昱和廉柯赟,2016,《股利税差别化、现金分红与代理问题——基于财税〔2012〕85号文件的研究》,《南开管理评论》第1期,第142～154页。 [4]贾凡胜、张一林、吴昱和周新月,2023,《上市公司为何不愿现金分红:税收成本抑或公司治理——来自股利税改革的经验证据》,《财经科学》第4期,第17～33页。 [5]贾建军、邵丽丽和陈欣,2016,《股利税改革与投资者交易行为研究》,《河南社会科学》第3期,第62～73页。 [6]李桂萍,2018,《股利税改革、财务杠杆与股权资本成本》,《中央财经大学学报》第6期,第72～82页。 [7]刘行、张艺馨和高升好,2015,《股利税与资本结构:中国的经验证据》,《会计研究》第10期,第66～73页。 [8]罗党论和甄丽明,2008,《民营控制、政治关系与企业融资约束——基于中国民营上市公司的经验证据》,《金融研究》第12期,第164～178页。 [9]阮启宏和翟爱梅,2015,《差异化红利税真的能抑制投机吗》,《南方经济》第6期,第19～39页。 [10]王国俊、陈冬华和蒋德权,2014,《红利税差异化征收推进价值投资了吗？》,《南京社会科学》第4期,第17～22页。 [11]王国俊和王跃堂,2020,《红利税改革对现金分红宣告效应的影响研究》,《中国工业经济》第11期,第137～155页。 [12]魏志华、吴育辉和李常青,2012,《家族控制、双重委托代理冲突与现金股利政策——基于中国上市公司的实证研究》,《金融研究》第7期,第168～181页。 [13]张纯和吕伟,2009,《信息披露、信息中介与企业过度投资》,《会计研究》第1期,第60～65页。 [14]Alstadsæter, A., M. Jacob and R. Michaely, 2017, “Do Dividend Taxes Affect Corporate Investment？”, Journal of Public Economics, 151, pp.74～83. [15]Alstadsæter, A., W. Kopczuk and K. Telle, 2014, “Are Closely Held Firms Tax Shelters？”, Tax Policy and the Economy, 28(1), pp.1～32. [16]Auerbach, A. J., 1979, “Wealth Maximization and the Cost of Capital”, The Quarterly Journal of Economics, 93(3), pp.433～446. [17]Bilicka, K. A., I. Guceri and E. Koumanakos, 2023, “Dividend Taxation and Firm Performance with Heterogeneous Payout Responses”, NBER Working Paper, No.30808. [18]Boissel, C. and A. Matray, 2022, “Dividend Taxes and the Allocation of Capital”, NBER Working Paper, No.30099. [19]Bradford, D. F., 1981, “The Incidence and Allocation Effects of a Tax on Corporate Distributions”, Journal of Public Economics, 15(1), pp.1～22. [20]Chay, J. B., B. U. Chong and H. J. Im, 2023, “Dividend Taxes and Investment Efficiency: Evidence from the 2003 US Personal Taxation Reform”, Journal of Accounting and Economics, 75(1), p.101514. [21]Chetty, R. and E. Saez, 2010, “Dividend and Corporate Taxation in an Agency Model of the Firm”, American Economic Journal: Economic Policy, 2(3), pp.1～31. [22]Feldstein, M. S., 1970, “Corporate Taxation and Dividend Behaviour”, The Review of Economic Studies, 37(1), pp.57～72. [23]Hadlock, C. J. and J. R. Pierce, 2010, “New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index”, The Review of Financial Studies, 23(5), pp.1909～1940. [24]Harberger, A. C., 1962, “The Incidence of the Corporation Income Tax”, Journal of Political Economy, 70(3), pp.215～240. [25]Hart, O., 1995, Firms, Contracts, and Financial Structure, Oxford: Clarendon Press. [26]Jiang, X., C. Zhang, J. Jia and S. Yu, 2018, “Individual Investors' Dividend Taxes and Corporate Innovation: Evidence from China”, China Journal of Accounting Studies, 6(3), pp.394～420. [27]Kaplan, S. N. and L. Zingales, 1997, “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints？”, The Quarterly Journal of Economics, 112(1), pp.169～215. [28]Kari, S. J., H. Karikallio and J. Pirttila, 2009, “The Impact of Dividend Taxation on Dividends and Investment: New Evidence Based on a Natural Experiment”, CESifo Working Paper, No.2756. [29]King, M. A., 1977, Public Policy and the Corporation, London: Chapman and Hall. [30]Korinek, A. and J. E. Stiglitz, 2009, “Dividend Taxation and Intertemporal Tax Arbitrage”, Journal of Public Economics, 93(1-2), pp.142～159. [31]Li, O. Z., H. Liu, C. Ni and K. Ye, 2017, “Individual Investors' Dividend Taxes and Corporate Payout Policies”, Journal of Financial and Quantitative Analysis, 52(3), pp.963～990. [32]Poterba, J. M. and L. H. Summers, 1984, “The Economic Effects of Dividend Taxation”, NBER Working Paper, No.1353. [33]Richardson, S., 2006, “Over-Investment of Free Cash Flow”, Review of Accounting Studies, 11, pp.159～189. [34]Sunley, E. M., 1992, “Corporate Integration: An Economic Perspective”, Tax Law Review, 47, pp.621～644. [35]Yagan, D., 2015, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut”, American Economic Review, 105(12), pp.3531～3563.
