Payout Taxation and Corporate Investment: The Agency Channel

67 Pages Posted: 6 Sep 2016 Last revised: 31 Jan 2018

See all articles by Song Ma

Song Ma

Yale School of Management; National Bureau of Economic Research (NBER)

Date Written: January 31, 2018


This paper demonstrates a new agency channel through which payout taxation affects corporate investment. Lower payout taxes increase managers' cash flow right to the firm via managerial ownership, which further aligns shareholder-manager incentives but exacerbates managerial risk exposures to the firm. I develop a framework to test this channel and provide supporting evidence using a setting of innovation investments around the 2003 Dividend Tax Cut. Aligning incentives stimulates the innovation input and output. Aggravated managerial risk aversion impedes innovation quantity and also shifts innovation to safer and more incremental directions. I also explore underlying operational channels and interactive mechanisms.

Keywords: Corporate Payout, Dividend Taxes, Corporate Investment, Innovation, Agency

JEL Classification: G30, G31, H25, O32

Suggested Citation

Ma, Song, Payout Taxation and Corporate Investment: The Agency Channel (January 31, 2018). Available at SSRN: or

Song Ma (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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