6. Conclusions
This study aims to investigate the tax preference theory of dividends in a sample of 672 Brazilian public firms for the period 1986-2011. We documented several changes in the tax legislation of dividends over the sample period and tested their effect on dividend payments using probit and Tobit regression analysis. Our findings suggest that the Brazilian firms do not follow target payout ratios, but they do try to pay dividends that are moderately dependent on past payments. The level of dividend payment is affected by stock voting rights, privatization, dividend payments deductibility provisions and changes of corporate governance rules. Changes in the tax legislation have a significant influence on dividend payout ratios, corresponding to the theoretical prediction. Payout ratios are positively affected by changes in regulation that reduce the agency problems among shareholders of the firm.
We have documented that the tax preference theory found empirical support in the Brazilian environment, given the numerous changes in the tax regulations over the year. Our results highlight the influence of taxation in the payout policies pursued by publicly listed firms. These results have a range of implications for managers, investors and policymakers. For managers, it is clear that maximizing shareholders’ value requires taking the consequences of the taxation – at the corporate and personal levels – into account when designing financial policies for the firm. For investors, the choice of which stocks to include in their portfolios should take into account their payout behavior and how it is affected by changes in dividend taxation.
