Family firms' dividend policies: Evidence from a Japanese tax reform

We hypothesize that family firms' dividend policies are in part determined by a consumption smoothing motive of family shareholders. Our paper tests this hypothesis using a Japanese dividend tax reform in 2011 which increased the dividend tax rate for only some groups of major family shareholders. In this quasi-experimental setting, we find that family firms with nonexecutive family shareholders, who were likely rentiers, counteracted the tax increase by increasing dividends. This behavior cannot be explained by standard theories of dividend policy, which predict a lower dividend payout, and highlights a unique governance problem in family firms.