Payout Policy

Farre-Mensa, Joan, Michaely, Roni and Schmalz, Martin C. (2014) Payout Policy. Annual Review of Financial Economics, 6. pp. 75-134.


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.

Item Type: Article
Keywords: Finance, payout policy, dividends, repurchases
Subject(s): Finance
Date Deposited: 03 Jan 2019 14:45
Last Modified: 03 Jan 2019 14:45
Funders: N/A

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