Suzanne Landry

The effects of a tax dividend cut on payout policies: Canadian evidence

Purpose - – The purpose of this paper is to examine whether the significant dividend tax rate reduction for individual investors in Canada in 2006 affected firms’ payout policies. Design/methodology/approach - – Using regression models, the authors examine the impact of the 2006 dividend tax cut on dividends and share repurchases in Canadian listed firms from 2003 to 2008. The authors also ran a multinomial logit regression to examine choices between payout policies. Findings - – Following the tax cut, firms increased their dividend payouts, with larger increases for firms in which shareholders benefited from the reduced tax rate. However, the 2006 tax cut appears to have had no negative effect on distributions through share repurchases. After the 2006 dividend tax cut, firms owned by shareholders subject to dividend taxes were more likely to use a combination of distribution mechanisms than share repurchases only, dividends only, or no payouts. Practical implications - – Shareholders’ tax preferences are an important factor for firms to consider when designing payout distribution policies. Following the 2006 dividend tax cut, firms increased their dividend payouts. Social implications - – The findings provide tax regulators with insight into how firms react to tax reform. They suggest that firms adapt their payout policy in the face of: a noteworthy dividend tax cut (6.2 per cent); a dividend tax cut that does not encourage tax arbitrage; and a dividend tax cut that does not economically favour dividend payment over share repurchases. Originality/value - – The paper considers the 2006 dividend tax rate cut in Canada, which presents a number of significant features that allow capturing the effect of a tax cut on payout policies.

Payout differences between family and nonfamily listed firms

Purpose – The purpose of this paper is to explain family firm payout decisions based on socioemotional wealth (SEW) considerations. Design/methodology/approach – A sample of publicly listed Canadian companies is examined for the period from 2003 to 2008. Distinguishing family firms from nonfamily firms, a Probit regression is used to analyze the likelihood of making a payout. For payout firms, regressions are used to analyze the relationship between payout level (dividends and share repurchases) and payout mix and family firms. Findings – Results indicate that family firms are more likely to make a payout than nonfamily firms. Among payout firms, the level of payout among payout firms is lower for family firms than for nonfamily firms and their portion of payout in the form of dividends is higher. Lone founder family firms have a lower likelihood of making payouts than other family firms. However, among payout firms, they pay out more than other family firms and have a smaller percentage of their total pa...

The Tax Benefits of Hedging for Small and Medium-Sized Firms

Abstract Tax laws create challenges for the role of hedging income volatility in the context of tax planning that are of interest from both theoretical and practical perspectives for the purpose of maximizing after-tax income. In this regard, the study concentrates on small and medium-sized enterprises (SME). It brings into focus the simultaneous interplay of the empirically observed range of coefficients of variation and autocorrelation of taxable incomes for SMEs, in connection with the progressive tax rates structure and the cazryover horizon of non-capital losses. It examines the relationship of potential tax savings with hedging using a Monte Carlo simulation methodology after controlling for the taxable income and payout policy of the SMEs. The reseazch is normative and should be useful to decision-makers whose firms have taxable incomes azound the kinks of the tax liability function.