Payout Policy

148 Pages Posted: 10 May 2002

See all articles by Roni Michaely

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Franklin Allen

Imperial College London

Multiple version iconThere are 3 versions of this paper

Date Written: April 2002


This paper surveys the literature on payout policy. We start with a description of the Miller-Modigliani payout irrelevance proposition, and then consider the effect of relaxing the assumptions on which it is based. We consider the role of taxes, asymmetric information, incomplete contracting possibilities, and transaction costs. The accumulated evidence indicates that changes in payout policies are not motivated by firms' desire to signal their true worth to the market. Both dividends and repurchases seem to be paid to reduce potential overinvestment by management. We also review the issue of the form of payout and the increased tendency to use open market share repurchases. Evidence suggests that the rise in the popularity of repurchases increased overall payout and increased firms' financial flexibility.

Keywords: Payout policy, dividends, repurchases

JEL Classification: G0, G3

Suggested Citation

Michaely, Roni and Allen, Franklin, Payout Policy (April 2002). Available at SSRN: or

Roni Michaely (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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