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Listed author(s):
  • Joan Farre-Mensa

    ()

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • Roni Michaely

    ()

    (Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853
    Interdisciplinary Center (IDC) Herzliya, Herzliya 46150, Israel)

  • Martin Schmalz

    ()

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

We survey the literature on payout policy, with a particular emphasis on developments in the past two decades. The cross-sectional empirical evidence for the traditional motivations behind firms paying out (agency, signaling, and taxes) is most persuasive with regard to agency considerations. Studies centered on the May 2003 dividend tax cut confirm that differences in the taxation of dividends and capital gains have only a second-order impact on setting payout policy. None of the three traditional explanations can account for secular changes in how payouts have been made over the past 30 years, during which repurchases have replaced dividends as the prime vehicle for corporate payouts. Other payout motivations, such as changes in compensation practices and management incentives, are better able to explain the observed variation in payout patterns over time than the traditional motivations. The most recent evidence suggests that further insights can be gained from viewing payout decisions as an integral part of a firm’s larger financial ecosystem, with important implications for financing, investment, and risk management.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110613-034259
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Article provided by Annual Reviews in its journal Annual Review of Financial Economics.

Volume (Year): 6 (2014)
Issue (Month): 1 (December)
Pages: 75-134

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Handle: RePEc:anr:refeco:v:6:y:2014:p:75-134
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