The Journal of Finance

Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

Published: 08/14/2007   |   DOI: 10.1111/j.1540-6261.2007.01261.x

JEFFREY R. BROWN, NELLIE LIANG, SCOTT WEISBENNER

We test whether executive stock ownership affects firm payouts using the 2003 dividend tax cut to identify an exogenous change in the after‐tax value of dividends. We find that executives with higher ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.

Neighbors Matter: Causal Community Effects and Stock Market Participation

Published: 05/09/2008   |   DOI: 10.1111/j.1540-6261.2008.01364.x

JEFFREY R. BROWN, ZORAN IVKOVIĆ, PAUL A. SMITH, SCOTT WEISBENNER

This paper establishes a causal relation between an individual's decision whether to own stocks and average stock market participation of the individual's community. We instrument for the average ownership of an individual's community with lagged average ownership of the states in which one's nonnative neighbors were born. Combining this instrumental variables approach with controls for individual and community fixed effects, a broad set of time‐varying individual and community controls, and state‐year effects rules out alternative explanations. To further establish that word‐of‐mouth communication drives this causal effect, we show that the results are stronger in more sociable communities.