Patterns in Payout Policy and Payout Channel Choice of UK Firms in the 1990s

Abstract:     
The paper examines the payout policy of UK firms listed on the London Stock Exchange during the 1990s. We complement the existing payout literature studies by analyzing jointly the trends in dividends and share repurchases. Unlike in the US, we find that, in the UK, firms do not demonstrate a decreasing propensity to distribute funds to shareholders.

The role of share repurchases is increasing, but dividends still constitute a vast proportion of the total payout. Firms repurchasing shares usually pay dividends as well. We also document that there is a strong relationship between the presence of blockholders and the choice of the payout channel: firms with concentrated ownership tend to opt for dividends rather than share repurchases, irrespectively of the identity of the controlling shareholder. We argue that the differential taxation of dividends and capital gains as well as the insider trading regulation affect the relative attractiveness of dividends and share repurchases to large shareholders.

Number of Pages in PDF File: 59

Keywords: payout policy, dividends, share repurchases, taxes, power indices, Banzhaf index, ownership structure, corporate governance

JEL Classification: G30, G32, G35

working papers series