Estimating effects of dividend tax policy changes in China
The dissertation includes three chapters analyzing the effects of divided tax policy changes in China. Specifically, this study discusses how firms responded to dividend policy changes, answers the question of whether such policy changes helped the government achieve its goal of lowering stocks’ turnover rates/trading volumes to increase financial market stability and explores the relationship between dividend taxation and firms’ value. The data shows that firms reacted quickly after the 2005 dividend tax cut. The total cash values of dividend distributions, distribution activities, and the number of firms that initiated/increased dividend payouts all increased after the announcement of this policy change. The paper finds that firms’ behaviors, in this case, were tax-driven. By conducting difference-in-differences method and propensity score matching with a variety of matching algorithms, I find that, after the 2005 policy change, lowering the dividend tax decreased the turnover rate and the number of trading volumes by over 18% and 68 million shares, respectively. However, when I extend this analysis to the 2012 dividend tax policy change, I find that the differentiated dividend tax has nearly opposite effects. Moreover, by using a logit model and price variation model, I find that firms’ value went up after the 2005 policy change. There is no evidence showing that the 2012 policy change had such effects.