Managerial Share Ownership, Life Cycle Theory and Dividend Policy in an Imputation Tax Environment

Abstract

Firms are more likely to pay dividends with higher payout ratios in an imputation environment. Insider ownership is positively related to the decision to pay dividends and dividend payout irrespective of imputation credits available. Firms with higher foreign institutional ownership are less likely to pay dividends. The impact of profitability and earned/contributed capital mix on the decision to pay dividends is stronger for firms following a traditional tax system, while the impact on profitability on dividend payout is stronger for firms within an imputation tax system. The study demonstrates the significance of the imputation tax system upon dividend policy.