TY  - JOUR
AU  - Desai,Mihir A.
AU  - Jin,Li
TI  - Institutional Tax Clienteles and Payout Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13283
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13283
L1  - http://www.nber.org/papers/w13283.pdf
N1  - Author contact info:
Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

Li Jin
Department of Finance
Guanghua School of Management
Peking University
Beijing 100871
China
E-Mail: ljin@gsm.pku.edu.cn
AB  - This paper employs heterogeneity in institutional shareholder tax characteristics to identify the relationship between firm payout policy and tax incentives.  Analysis of a panel of firms matched with the tax characteristics of the clients of their institutional shareholders indicates that "dividend-averse" institutions are significantly less likely to hold shares in firms with larger dividend payouts.  This relationship between the tax preferences of institutional shareholders and firm payout policy could reflect dividend-averse institutions gravitating to low dividend paying firms or managers adapting their payout policies to the interests of their institutional shareholders.  Evidence is provided that both effects are operative.  Instrumental variables analysis indicates that plausibly exogenous changes in payout policy result in shifting institutional ownership patterns.  Similarly, exogenous changes in the tax code indicate that as the tax cost of paying dividends changes, managers alter their dividend policy to serve their institutional shareholders.
ER  -