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Session Chair: Sebastian Gryglewicz, Erasmus University Rotterdam
Personal Taxes and Corporate Cash Holdings
Jens Dick-Nielsen, Kristian Miltersen, Ramona Westermann
Copenhagen Business School, Denmark
Discussant: Sebastian Gryglewicz (Erasmus University Rotterdam)
Dividends are taxed at the personal level, but injecting funds into firms does not offer the symmetric tax benet. Hence, there is a personal tax saving incentive to retain cash in the firm. We develop a corporate finance model of liquidity management, in which the firm's liquidity policy trades off precaution and saved personal taxes against agency and corporate tax costs. The model implies that the tax saving motive is substantial and increasing with the dividend tax rate. Consistent with the model, we show empirically that, after the 2003 dividend tax cut, firms with taxable investors reduced their cash accumulation.
Direct democracy, corporate political strategy, and firm value
Ruediger Fahlenbrach1,2, Alexei Ovtchinnikov3, Philip Valta4
1Ecole Polytechnique Fédérale de Lausanne; 2Swiss Finance Institute; 3HEC Paris; 4University of Bern
Discussant: Felix Meschke (University of Kansas)
We analyze a novel data set of corporate contributions to ballot initiatives and referendums at the U.S. state level between 2003 and 2018. Ballot initiatives and referendums allow citizens of 26 U.S. states to vote directly on legislation. Firms make significant contributions to ballot measure committees in favor of or against specific initiatives that exceed on average their political action committee contributions. Firms that contribute to successful (failed) direct initiated state initiatives generate positive (negative) CARs of 0.32% (-0.21%) on average around the election. They also experience significant sales growth in the two years surrounding successful ballot measure campaigns.