However if dividend income is taxed at a higher rate

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Unformatted text preview: gramme also pay dividends. However, stock repurchase programmes are temporary and do therefore (unlike dividends) not serve as a long-term commitment to distribute excess cash to shareholders. In the absence of taxation, shareholders are indifferent between dividend payments and stock repurchases. However, if dividend income is taxed at a higher rate than capital gains it provides a incentive for stock repurchase programmes as it will maximize the shareholder's after-tax return. In fact, the large surge in the use of stock repurchase around the world can be explained by higher taxation of dividends. More recently, several countries, including the United States, have reformed the tax system such that dividend income and capital gains are taxed at the same rate. 8.11.3 How companies decide on the dividend policy Please click the advert You’re full of energy and ideas. And that’s just what we are looking for. © UBS 2010. All rights reserved. In the 1950'ties the economist John Lintner surveyed how corporate managers decide the firm's dividend policy. The outcome of the survey can be summarized in five s...
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.

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