Abstract

http://ssrn.com/abstract=2400618
 
 

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Payout Policy


Joan Farre-Mensa


Harvard Business School

Roni Michaely


Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)

Martin C. Schmalz


The Stephen M. Ross School of Business at the University of Michigan

February 24, 2014

Ross School of Business Paper No. 1227

Abstract:     
We survey the literature on payout policy, with a particular emphasis on developments in the last two decades. Of the traditional motives of why firms pay out (agency, signaling, and taxes), the cross-sectional empirical evidence is most persuasive in favor of agency considerations. Studies centered on the May 2003 dividend tax cut confirm that differences in the taxation of dividends and capital gains have only a second-order impact on setting payout policy. None of the three traditional explanations can account for secular changes in how payouts are made over the last 30 years, during which repurchases have replaced dividends as the prime vehicle for corporate payouts. Other payout motives such as changes in compensation practices and management incentives are better able to explain the observed variation in payout patterns over time than the traditional motives. The most recent evidence suggests that further insights can be gained from viewing payout decisions as an integral part of a firm’s larger financial ecosystem, with important implications for financing, investment, and risk management.

Number of Pages in PDF File: 119

Keywords: Payout Policy; Survey; Dividends; Share Repurchases

JEL Classification: G35

working papers series


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Date posted: February 25, 2014 ; Last revised: March 20, 2014

Suggested Citation

Farre-Mensa, Joan and Michaely, Roni and Schmalz, Martin C., Payout Policy (February 24, 2014). Ross School of Business Paper No. 1227. Available at SSRN: http://ssrn.com/abstract=2400618 or http://dx.doi.org/10.2139/ssrn.2400618

Contact Information

Joan Farre-Mensa (Contact Author)
Harvard Business School ( email )
Rock Center 218
Soldiers Field Road
Boston, MA 02163
United States
617-495-6963 (Phone)
HOME PAGE: http://people.hbs.edu/jfarremensa
Roni Michaely
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
Martin C. Schmalz
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan St
R5456
Ann Arbor, MI 48109-1234
United States
7347630304 (Phone)
HOME PAGE: http://https://sites.google.com/site/martincschmalz/
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