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Dividend or Stock Repurchases?: US 2012 Tax Increase and Its Implication on Payout Policy
Mälardalen University, School of Business, Society and Engineering.
Mälardalen University, School of Business, Society and Engineering.
2019 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Problem: Stock repurchases, and dividends have been a topic of academic interest for decades. Researchers have been trying to understand the determinants of payout policies and the conjunctural relationship between dividends and repurchases. That is, under which circumstances is one preferred over the other. In this paper, we make an attempt to contribute to the already existing research on the area. For this purpose, we study a specific period in time when a tax reform was enacted. That way we hope to obtain information on the payout policy that companies choose, and how the taxes influence these

Purpose: In this paper our aim is to find out, by using a sample of quarterly data prior and after the implementation of the 2012 (enacted in 2012 and put into effect in January 1, 2013) tax reform (four quarters prior and four quarters after), whether the payout policies are affected by the changes in the dividend and/or the capital gain tax. This may, in turn, reveal information about the dividends and repurchases and how corporations choose to respond to adjustments in taxes as explained by the dependent variables.

Method: We perform multinomial logistic, fixed and random effects regression analyses to the quarterly data of companies listed on the United States stock market benchmark index, the S&P 500. We use descriptive statistics and theoretical fundamentals to establish a relationship between the dividends and repurchases policies, as the changes in the tax code come to effect.

Results and Conclusion: Despite the size of the sample, we found that firms tend to prefer; 1) to do a combination of dividend and repurchases, and 2) when taxes increase, there is a positive effect on dividend, and that repurchases are preferred over dividends.

Place, publisher, year, edition, pages
2019. , p. 42
Keywords [en]
Repurchases, Dividends, Taxes, Payout policy
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:mdh:diva-44071OAI: oai:DiVA.org:mdh-44071DiVA, id: diva2:1324582
Subject / course
Economics
Presentation
2019-06-05, Phi, Högskoleplan 1, Västerås, 09:00 (English)
Supervisors
Examiners
Available from: 2019-06-14 Created: 2019-06-13 Last updated: 2019-06-14Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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