The Redemption Puzzle

7 Pages Posted: 8 Jul 2010 Last revised: 15 Sep 2010

Date Written: June 30, 2010


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.

Keywords: Redemptions, Dividends, Shareholder Tax

JEL Classification: H25

Suggested Citation

Avi-Yonah, Reuven S., The Redemption Puzzle (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, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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