The relation between shareholder-level taxes and firm value has fundamental implications for understanding why firms pay dividends and how taxes influence capital structure choices. Despite its importance, however, several underlying problems have hampered existing research on the specific...

Himmelberg, Hubbard, and Love combine the agency theory of the firm with risk diversification incentives for insiders. Principal-agent problems between insiders and outsiders force insiders to retain a larger share in their firm than they would under a perfect risk diversification strategy. The...