The lock-in effect and the corporate payout puzzle

Arbeitspapier

Taxes on capital gains are deferred until realization, whereas dividend taxes are levied upon accrual. This often makes dividends tax-disadvantaged relative to share repurchases, which leads to the payout puzzle: why do firms pay dividends? This paper develops a model of corporate payout policy to demonstrate that tax deferment can also provide a partial solution to the payout puzzle: if shareholders demand repurchase premiums when selling equity back to a firm - as compensation for accelerated realizations - then dividend payments can become tax-efficient. This mechanism is appealing because it jointly explains a number of payout regularities without appealing to asymmetric information, incomplete contracting, repurchase constraints, and/or shareholder irrationality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ISER Discussion Paper ; No. 1070

Classification and Topics

• Classification: Wirtschaft ; Payout Policy ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
• Subject: Payout Policy ; Capital Taxation ; Portfolio Choice

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mitchell, Chris
• Event: Veröffentlichung
• (who): Osaka University, Institute of Social and Economic Research (ISER)
• (where): Osaka
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/230476
• Last update: 10.03.2025, 11:42 AM CET