Individual investors' dividend tax reform and corporate social responsibility

This paper examines the effect of individual investors' dividend tax on the fulfillment of corporate social responsibility (CSR). By introducing the implementation of dividend tax reform (DTR) for individual investors, we present strong evidence that the reduction of the individual investors' dividend tax significantly reduces the fulfillment of CSR activities related to all stakeholders, except for shareholders. A plausible mechanism is that the reform encourages individual investors to increase holding periods, thereby crowding out institutional investors, which further reduces the firms' external monitoring pressure. The effect is particularly pronounced for firms with high ownership concentration, low individual investor attention, and low executive ownership. By revealing the unintended effect of the individual investors' DTR on the firms' fulfillment of CSR, our study presents a clear policy to regulators concerned with CSR and investor protection.

Automated summary

This paper examines the effect of individual investors' dividend tax on corporate social responsibility (CSR). The study shows that reducing the dividend tax for individual investors significantly reduces the fulfillment of CSR activities related to all stakeholders, except for shareholders. The mechanism behind this is that the tax reform encourages individual investors to increase holding periods, leading to a decrease in institutional investors and external monitoring pressure. The effect is particularly significant in firms with high ownership concentration, low individual investor attention, and low executive ownership. This study highlights the unintended consequences of individual investors' dividend tax on CSR fulfillment and provides clear policy recommendations for regulators concerned with CSR and investor protection.