The Effects of Halved Imputation Tax Credits and Wealthy Tax on the Dividend Policies of Listed Companies: A Comparative Study of Family and Non-Family Firms in Taiwan

Abstract

This study examines the effects of halved imputation tax credits and wealthy tax on the dividend polices of listed companies in Taiwan, and tests whether family and non-family firms would respond differently to the impacts of these tax reforms. We find that firms with high imputation credit ratios and high shareholdings of individual directors and supervisors have a relatively higher dividend payout ratio in the year before the tax reforms, and that the result is only prevalent among family firms. Conversely, we find that after the tax reforms, family and non-family firms with high imputation credit ratios and high shareholdings of individual directors and supervisors did not pay relatively lower dividends, with their dividend payout ratios being insignificantly different from those other types of firms. Finally, our additional analyses indicate that firms affected by the tax reforms pay relatively high dividends in the period preceding the tax reforms and pay less dividends after the reforms, consistent with the tax clientele theory. However, this result is only significant for non-family firms, suggesting that family firms are more concerned about non-tax costs than non-family firms in deciding whether to change their dividend policies in response to the tax reforms.