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Tax‐efficient irregular payout methods: The case of B share schemes and capital repayments via a court‐approved scheme of arrangement

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  • Dennis Oswald
  • Steven Young

Abstract

Advance corporation tax (ACT) increased the tax cost to UK firms of distributing cash to shareholders. We demonstrate how the tax cost arising from ACT payments affected the channels through which UK firms returned capital to shareholders. In particular, we document and describe two unconventional irregular payout methods that enabled firms to avoid paying ACT. Firms choosing these methods are associated with significantly greater ACT problems than a control sample of firms that opted for conventional self‐tender offers and special dividends. Event study tests indicate that the decision to adopt tax‐efficient payout methods created significant additional value for shareholders beyond the basic cash distribution decision.

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  • Dennis Oswald & Steven Young, 2008. "Tax‐efficient irregular payout methods: The case of B share schemes and capital repayments via a court‐approved scheme of arrangement," Accounting and Business Research, Taylor & Francis Journals, vol. 38(1), pages 49-70.
    • Handle: RePEc:taf:acctbr:v:38:y:2008:i:1:p:49-70
    DOI: 10.1080/00014788.2008.9663319
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    References listed on IDEAS

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    Cited by:

    1. Khaled Hussainey & Martin Walker, 2009. "The effects of voluntary disclosure and dividend propensity on prices leading earnings," Accounting and Business Research, Taylor & Francis Journals, vol. 39(1), pages 37-55.
    2. Armitage, Seth & Gallagher, Ronan, 2019. "Are pension contributions a threat to shareholder payouts?," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 27-42.

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