Talented CBS researcher awarded grant

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Can tax incentives explain excessive corporate cash holdings? We asked Westermann, who works at the Department of Finance at CBS, to tell us more about the research project the grant awarded by the Danish Council for Independent Research will support.
 
Ramona Westermann, what is your project about?
“Companies worldwide have a stockpile of cash, the size of which is surprising and cannot be explained by existing theories. Specifically, their corporate cash reserves are often much larger than what would be expected to guard against hard times or to be set aside for future investments. Why don’t companies pay out some of their cash holdings to shareholders instead? The project proposes using a tax-related approach to address this question.”
 
How did you get into your field of research?
“My area of expertise is corporate finance, which basically involves studying how companies are financed and how they invest and grow. I find this research area fascinating because its principles are intuitive, but the implications can be complex. In a world without financial frictions such as taxes, for instance, only corporate projects matter, not how the company is financed. The interaction between corporate finance, the macroeconomy and political decisions, however, is complex and not fully understood. I hope that my research can contribute to a better understanding of this interplay, which I think is important, especially in times of crisis.”
 
What impact do you believe your research ultimately will have on society?
“Dividend taxation differs from country to country and changes over time. Little is known, however, about how dividend taxation influences corporate decisions. Understanding the effects could result in policy recommendations, for example. The project will develop a technical model as a foundation for further research on the effects of dividend taxation on areas such as investment decisions and alternative sources of financing. Ultimately, this line of research will help us to better understand the economy-wide implications of dividend taxation.”
 
If you have any questions, please contact Ramona Westermann.