The Effect of Taxation on Equal Access Share Buy Backs in Australia

Posted: 27 Jun 2006

See all articles by Christine A. Brown

Christine A. Brown

Department of Banking and Finance; Financial Research Network (FIRN)

Katrina Efthim

University of Melbourne


In Australia, equal access share buybacks can be structured so that a portion of the buyback price is designated as a fully franked dividend. The tax benefits derived from this structure imply that off-market buybacks are sometimes offered to shareholders at a discount to the current market price. This is in contrast to the US which operates under a classical taxation system, and where off-market buybacks are generally executed at a premium to the market price. The situation in Australia provides a unique opportunity to add to our understanding of taxation explanations for how and why companies buy back their shares. We find that the size of the discount of the offer price to the current share price is significantly related to the proportion of the buyback price designated a franked dividend. Analysis of the after-tax benefits to shareholders leads us to conclude that the structure of many equal access buybacks in Australia is advantageous to superannuation funds holding the stock.

Keywords: imputation, franking, buyback, repurchase, off-market, equal access

JEL Classification: G30, G32, G35

Suggested Citation

Brown, Christine A. and Efthim, Katrina, The Effect of Taxation on Equal Access Share Buy Backs in Australia. International Review of Finance, Forthcoming, Available at SSRN:

Christine A. Brown (Contact Author)

Department of Banking and Finance ( email )

Building 11E
Clayton, Victoria 3800
+61 3 99031793 (Phone)
+61 3 99055475 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Katrina Efthim

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics