Share Repurchases and Dividends: Effect of substitution or complementarity in the context of tax hypothesis
جاري التحميل...
التاريخ
المؤلفين
عنوان الدورية
ردمد الدورية
عنوان المجلد
الناشر
Revue Bancaire et Financière/Bank- en Financiewezen
خلاصة
A dividend is a pro rata distribution to shareholders that is declared by the company’s board of directors and may or may not require approval by shareholders. A repurchase of stock is a distribution in the form of the company buying back its stock from shareholders. Are share repurchases good or bad? The answer, as might be expected, is a bit gray.
Assuming the company has a certain amount of cash they wish to return to shareholders, the two ways they can do it are through dividends and share repurchases. Share repurchases (also referred to as a share buyback or a stock buyback) are typically more flexible for the company, while dividends are more flexible for the shareholder.
The objective of this paper is to examine the relation between share repurchases and dividends. Thus, both mechanisms provide funds to shareholders. The explanation of the choice between share repurchase and dividend is, in particular, the existence of different tax conditions between these two methods of payment. In most cases, capital gains tax is more favorable than dividends, which encourages some shareholders to prefer share repurchasing than dividends in order to benefit from tax savings. Nevertheless, the tax preference for share repurchase is not verified for all investors.