Journal of Applied Finance & Banking

Dividend Tax Gradation and Corporate Investment Efficiency: Evidence from China

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• Abstract

   

  This paper exploits China’s Graduated Dividend Tax (GDT) policy as a quasi-natural experiment and applies a difference-in-differences approach to examine the effect of dividend tax adjustments on firms’ investment efficiency. The results show that the policy improves investment efficiency, mainly by curbing overinvestment. Mechanism analyses indicate that the GDT policy operates by increasing individual investors’ patience and improving corporate governance, including reducing information asymmetry. Heterogeneity analyses further show that the effects are more pronounced for highly leveraged firms with more frequent shareholder meetings. Overall, the results suggest that the GDT policy improves firms’ investment efficiency by strengthening corporate governance and curbing overinvestment.

   

  JEL classification numbers: G32, G34, D22.

  Keywords: GDT policy, Investment efficiency, Long-term shareholding; Corporate governance.