Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230476
Authors: 
Mitchell, Chris
Year of Publication: 
2019
Series/Report no.: 
ISER Discussion Paper No. 1070
Abstract: 
Taxes on capital gains are deferred until realization, whereas dividend taxes are levied upon accrual. This often makes dividends tax-disadvantaged relative to share repurchases, which leads to the payout puzzle: why do firms pay dividends? This paper develops a model of corporate payout policy to demonstrate that tax deferment can also provide a partial solution to the payout puzzle: if shareholders demand repurchase premiums when selling equity back to a firm - as compensation for accelerated realizations - then dividend payments can become tax-efficient. This mechanism is appealing because it jointly explains a number of payout regularities without appealing to asymmetric information, incomplete contracting, repurchase constraints, and/or shareholder irrationality.
Subjects: 
Payout Policy
Capital Taxation
Portfolio Choice
JEL: 
G35
H24
G50
Document Type: 
Working Paper

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