Ramona Westermann receives DKK 1.87 mill. grant from The Danish Council for Independent Research

Assistant professor at the Department of Finance and FRIC center member Ramona Westermann receives DKK 1.87 mill. grant from The Danish Council for Independent Research to investigate a new, tax-related approach that can help explain why firms world-wide hold excessive amounts of cash and why they do not for instance pay some of the large cash holdings out to e.g. their shareholders.

The project is entitled Can tax incentives explain excessive corporate cash holdings? and studies how payouts to shareholders (dividends) are taxed, but if cash is needed later (e.g., for paying back debt or for financing investments), the firm has to raise new funds, which does not offer any corresponding tax advantage. Thus, dividend taxation leads to a tax-saving motive to retain cash if the funds are possibly needed later. The project formalizes this idea with a theoretical model. Ultimately, the model aims at explaining the high cash levels observed in practice.

Find more information about the grant here.