The Redemption Puzzle
Reuven S. Avi-Yonah
University of Michigan Law School
June 30, 2010
U of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 10-018
U of Michigan Public Law Working Paper No. 213
Following the adoption of partial integration in 2003, there was only a modest increase in dividends during the period 2004-7, from about 300 to about 500 (if 1987 levels are set at 100). Redemptions, however, showed a remarkable increase, jumping from about the same as dividends (300) to 1,800. This, therefore, leads to a new puzzle: Why the sudden sharp increase in redemptions following 2003?
Like the dividend puzzle, the redemption puzzle is susceptible to several explanations. For example, Bratton and Wachter note that managers who hold stock options tend to favor redemptions over dividends. But in this case, I believe there is also a tax explanation for the puzzle, related to the different treatment of redemptions and dividends to foreign shareholders.
Number of Pages in PDF File: 7
Keywords: Redemptions, Dividends, Shareholder Tax
JEL Classification: H25working papers series
Date posted: July 8, 2010 ; Last revised: September 15, 2010
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