CUTTING THE DIVIDENDS TAX…AND CORPORATE GOVERNANCE TOO?

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Abstract

Economists tend to agree that the recent cutting of US dividends taxes will encourage investment and reduce financial distress. In addition to creating these “benefits,” however, the tax cut can also increase governance costs. For example, by removing a bias for leveraged capital structures, the tax cut foregoes debt’s superiority on at least three dimensions: Evaluating and monitoring demanders of financial capital; Constraining managerial agents’ from opportunistically employing capital market proceeds; and Encouraging non-financial stakeholders (e.g., employees, suppliers) to make firm-specific investments.

Keywords: Dividends Tax, Corporate Governance

How to cite this paper: Falaschetti, D., & Orlando, M. J. (2006). Cutting the dividends tax…and corporate governance too?. Corporate Ownership & Control, 3(2), 31-34. https://doi.org/10.22495/cocv3i2p4