The efficiency costs of dividend taxation with managerial firms

Marko Koethenbuerger, Michael Stimmelmayr

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The paper provides a positive and efficiency analysis of dividend taxation in a corporate agency model with a costly managerial effort. Unlike existing (agency) models, this model is consistent with empirical work in corporate finance and able to predict empirically observed investment responses to dividend taxation. In addition, we show that investment changes are not sufficient to infer, first, the efficiency cost of dividend taxation and, second, the financing regime underlying firms' investments. We provide a testable implication that allows to empirically uncover the source of investment finance by comparing investment responses to dividend taxes and managerial incentive pay.

Original languageEnglish
Article numberueab064
Pages (from-to)1123-1149
Number of pages27
JournalThe Economic journal
Issue number643
Early online date20 Aug 2021
Publication statusPublished - 30 Apr 2022


  • dividend taxation, quiet-life model, corporate governance, tax on incentive pay, managerial firms


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