Income Taxation Regulation and Companiesí Behaviour: Is the Romanian Companiesí Dividend Policy Influenced by the Changesin Income Taxation?

by Dragota, Mihaela; Dragota, Victor; Tatu, Lucian and Tatu, Delia
Published in Romanian Journal of Economic Forecasting
, 2009, volume 10 issue 1, 76-93

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This paper analyzes the dividend payout by Romanian companies listed on the Bucharest Stock Exchange in connection with the changes in corporate taxes. If the tax burden on corporate gross incomes is increasing, the companiesí management can follow two reasons in deciding the dividend payout: to allocate more for investments, or to increase the dividend ratio. Each of these decisions can be argued based on Corporate Finance principles, depending on the management objectives. This paper found no significant correlation between the dividend policy and the corporate tax burden. However, the dividend payout reacted when the regulations related to the tax treatment of incomes were changed in 2005. Moreover, the dividend policy seems to be sensitive to the ownership structure, which can be explained by the impact of some
agency problems.

Keywords: dividend payout, taxation, agency problem, emergent markets
JEL Classification:
G34, G35, G38