Dividend decision in closely held companies - An event study of the Swedish 3:12 chapter tax code changes on Jan 1, 2006
Abstract: In Sweden, owners of closely held companies are subject to a special set of tax rules regarding dividends and capital gains. The 3:12 rules that regulate the taxation of owners of closely held companies were implemented in 1991 alongside a dual tax system with different tax rates for investment income and labour income. These special tax rules have since then changed several times. In this paper we study the changes that became effective on Jan 1, 2006 and estimate the impact of those changes on the dividend decision for the closely held companies. Our results suggest that the new set of 3:12 tax rules increased the dividend share for the closely held companies, both in absolute numbers but more importantly also in dividends divided by total assets.
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