Seminar – Personal taxes and corporate cash holdings

Ramona Westermann, Associate Professor of Finance, Copenhagen Business School

Dividends are taxed at the personal level, but injecting funds into firms does not offer the symmetric tax benefit. Hence, there is a tax saving incentive to retain cash in the firm. We develop a corporate finance model of liquidity management, in which the firm’s liquidity policy trades off precaution and saved personal taxes against agency and corporate tax costs. The model implies that the tax saving motive is substantial and increasing with the dividend tax rate. Consistent with the model, we empirically show that affected firms reduce their cash accumulation after a dividend tax cut.

Speaker bio

Ramona Westermann is an Associate Professor of Finance at Copenhagen Business School. Her research field is corporate finance, in particular, capital structure, corporate liquidity management, and investment. For instance, her papers study how agency conflicts, renegotiable contracts, or macroeconomic conditions impact corporate value, credit risk, and corporate policies. Her work is published in leading journals such as the Journal of Financial Economics and the Review of Finance.

Lunch will be available to participants in the seminar room from 12:15

For more information, please contact Emily Brown.