Payout policy in Brazil: Dividends versus interest on equity

► We examine the impact of tax burden on cash distribution using Brazilian firms. ► Brazilian law allows distributions to shareholders as dividends and interest on equity. ► Brazil's institutional setting isolates the effect of taxes on payout policy. ► Taxes are a primary determinant of Brazilian firms' payout policy decisions. ► Firms that continue to pay dividends appear to be catering to investor demand.