This paper investigates how a reduction in corporate taxation affects the dividend payout behavior of large-cap Indian firms. The inquiry is motivated by the landmark corporate tax reform enacted in fiscal year 2019–20, which considerably raised after-tax profitability and was widely anticipated to reshape how companies distribute earnings. Drawing on a panel dataset comprising the top 100 large-cap firms listed on the National Stock Exchange across the period 2009–10 through 2024–25, this research employs a battery of panel econometric techniques—including Fixed Effects (FE), Two-Way Fixed Effects (TWFE), Difference-in-Differences (DiD), and Dynamic Panel estimation. A firm-specific tax shock intensity metric is constructed to reflect heterogeneity in how the reform affected individual companies. The findings are unambiguous: tax reduction exerts no statistically significant influence on dividend payouts. The tax shock coefficient remains non-significant regardless of model specification—whether estimated via continuous or binary DiD frameworks. Conversely, internal firm-level financial attributes such as operating cash flow and liquidity demonstrate strong and statistically reliable positive associations with payout ratios, while excess cash reserves are negatively linked to dividend distributions. The dynamic specification confirms persistent dividend behavior, indicating that firms adhere to stable, inertia-driven payout policies across time. Collectively, the evidence implies that firms absorb tax-driven savings internally—redirecting them toward liquidity enhancement and self-financing—rather than disbursing them as dividends. This pattern reflects an orientation toward financial conservatism and enduring stability. The study enriches the existing literature by delivering evidence-based insights from an emerging economy and underscores the constrained role of taxation in driving dividend decisions. From a policy standpoint, the findings suggest that corporate tax relief, in isolation, may be insufficient to generate the shareholder redistribution outcomes policymakers intend
Chirag Goyal (Thu,) studied this question.