The 2003 Dividend Tax Cut and Bank Credit Supply

Office of Alumni and External Relations    2021-11-22

Subject: The 2003 Dividend Tax Cut and Bank Credit Supply

Guest: Keyuan Zhang, Ph.D. Candidate, the National University of Singapore

HostLijun Xia, Professor, Antai 

Time: Thursday, Nov 18, 2021, 16:00-17:30

Venue: Tencent Meeting


We investigate the effect of the 2003 dividend tax cut on bank credit supply. If the dividend tax cut reduces the cost of equity capital, banks can expand their business and increase investments in loans. We find that after the tax cut, C-corporation banks (treatment group) had a higher loan growth rate than S-subchapter banks (control group) whose investors are immune from the dividend tax cut. The tax cut impacted the U.S. real economy through this bank lending channel. Firstly, small businesses had more access to debt financing from C-banks, which increased the supply of commercial and industrial loans. Local entrepreneurship was boosted consequently. Secondly, more households got their mortgage loans approved from C-banks due to the expansion in real estate loans. Low income, female, or minority applicants benefited more than other applicants. Finally, C-banks issued more personal loans to individuals and households after the tax cut. Local consumption surged in counties with higher C-bank market shares. Our research adds to the literature on the consequences of the 2003 dividend tax cut by investigating bank credit supply and the real economic effects through the bank lending channel.


Keyuan Zhang is a Ph.D. candidate in accounting at the National University of Singapore. His research interests include tax, banking, and labor finance.

Tags:Thursday, Nov 18, 2021, 16:00-17:30