Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147672
Authors: 
Nekat, Kai
Nippel, Peter
Year of Publication: 
2007
Series/Report no.: 
Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 619
Abstract: 
In inefficient stock markets payout policy may be directly relevant for stock prices, not only by way of announcement effects considered in signaling games. We show that paying out free cash flow, either as a dividend or via repurchasing shares, has in general a positive price impact and increases shareholders' wealth, if the existence of non-smart investors and limits of arbitrage leads to market inefficiency. Shareholders gain more from a share repurchases instead of paying a dividend as long as capital gains are not heavily discriminated by taxation in relation to dividends. The positive price effect of dividends can be enhanced if the firm implements a dividend reinvestment plan (DRIP).
Subjects: 
Payout policy
Dividends
Share Repurchases
Inefficient Market
Price Pressure
Dividend Reinvestment Plans (DRIPs)
JEL: 
G14
G35
Document Type: 
Working Paper

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