Acta Oeconomica Pragensia 2006, 14(3):63-72 | DOI: 10.18267/j.aop.90

Impact of Taxes and Agency Costs on Dividend Policy

Pavel Kraus
Ing. Pavel Kraus - Ph.D. student; Department of Corporate Finance and Valuation, Faculty of Finance and Accounting,. University of Economics, Prague, nám. W. Churchilla 4, 130 67 Prague 3, Czech Republic, kraus@vse.cz

Real estate investment trusts (REIT) in USA have been imposed a 95% required minimum dividend payout ratio. Empirical observations have proved that this limit is not sufficient to explain REIT's dividend policies. Most of them pay out more than required by tax law. Imperfect information and agency costs are hypothesized to be the explanation. Therefore, possible factors for identifying of agency costs are introduced - type of investment fund, ROA, Tobin's Q, asset growth, debt to asset - ratio. Finally, authors of empirical research have proved at least partial impact of agency costs on dividend. This article deals with possibilities of avoidance of tax burden on dividend income by levering of portfolio and conversion of dividends to capital gains. Furthermore, loan funds can be invested in life insurance to hold the risk of portfolio at the level of unlevered portfolio. There are other financial instruments such as building saving or pension insurance, which can be also used to unlever the portfolio.

Keywords: dividend, tax, capital gain
JEL classification: G30

Published: October 1, 2006  Show citation

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Kraus, P. (2006). Impact of Taxes and Agency Costs on Dividend Policy. Acta Oeconomica Pragensia, 14(3), 63-72. doi: 10.18267/j.aop.90
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    References

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