BI Norwegian Business School
Date and Location
Thursday, September 5th, 2019 – 14:00 – 15:30
Visioconference: Paris (P305) and Lille (R217)
We examine how negative liquidity shocks to shareholders propagate to firms. Analyzing regulatory shocks to personal wealth taxation in Norway, we show that higher taxes on the home of a private firm’s controlling shareholder are associated with higher dividend and salary payments from the firm to the shareholder, lower cash holdings in the firm, and lower firm growth. A one percentage-point increase in the shareholder’s wealth-tax-to-liquid-assets ratio is on average followed by a half percentage-point increase in the dividends-to-earnings ratio and a half percentage-point decrease in sales growth. These findings suggest that shareholder illiquidity has causal effects on firm behavior.