Payout Policy

Off-market share buybacks in Australia are often structured with the buyback price comprising a large dividend component (which may carry imputation tax credits) and a small capital component. This unique structure has the consequence that institutions on low tax rates stand to benefit most from selling shares into the buyback. In this article, we explore evidence of abnormal trading activities around key dates in the conduct of off-market buybacks and investigate the drivers of these activities. We find evidence of abnormal trading activities around the initial announcement and the final announcement dates of the buyback. The significant differences in abnormal volumes between the buybacks with and without imputation tax credits highlight the importance of tax motivations in explaining abnormal trading activities in the shares of companies conducting off-market buybacks, and are consistent with observed buying pressure around the announcement of the buyback.

show abstract

“…Long‐term stability of cash flows and cash position of firms are found to be more important than tax reasons (Farre‐Mensa et al. ).…”

mentioning

confidence: 99%

Off‐Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates

Yong

Brown

2014

Int Rev Finance

View full text Add to dashboard Cite

show abstract

“…Over time, firms would then replenish cash, either through cash flow or external financing. Farre-Mensa, Michaely, and Schmalz (2014) show that about a third of the dividends were externally financed.…”

Section: Cash Holdingsmentioning

confidence: 99%

Levered Returns

Welch¹

2016

View full text Add to dashboard Cite

“…16 Most 15 Surveys of the payout policy literature are provided in Allen and Michaely (2003); DeAngelo et al (2008);and Farre-Mensa, Michaely, and Schmalz (2014).…”

Section: Implications Of the Us Taxation Of Foreign Earnings For Fimentioning

confidence: 99%

The U.S. Tax and Financial Reporting Treatment of Foreign Earnings and U.S. Multinational Companies' Payout Policies

Nessa

2015

SSRN Journal

View full text Add to dashboard Cite

This paper examines the impact of the U.S. tax and financial reporting treatment of foreign earnings on the payouts to shareholders of U.S. multinational companies (MNCs). I find the U.S. tax and financial reporting treatment of foreign earnings weakens the otherwise strong, positive association between foreign earnings and the probability and level of dividend payments, but I do not observe an effect on the probability or level of share repurchases or on the level of total payout. I also find U.S. MNCs with tax and/or financial reporting incentives to keep their foreign profits reinvested abroad make more extensive use of repurchases than dividends when making distributions to shareholders. This study contributes to our understanding of the impact of the current U.S. worldwide tax system on U.S. MNCs' real decisions. TABLE OF CONTENTSLIST LIST OF TABLES LIST OF ABBREVIATIONS Dependent Variables:Dividendsit = dividends paid to common shareholders (dvc) by firm i in year t. DivIndit = 1 if Dividendsit > 0, and 0 otherwise. DivLevit = Dividendsit, scaled by total assets (at) at the end of year t-1. Repurchasesit = purchases of common and preferred stock by firm i in year t (prstkc) less any decrease in the redemption value of preferred stock from year t-1 to year t (pstkrv), or less any decrease in preferred stock (pstk) from year t-1 to year t if the redemption value of preferred stock is missing. RepIndit = 1 if Repurchasesit > 0, and 0 otherwise. RepLevit = Repurchasesit, scaled by total assets (at) at the end of year t-1.PayInd it = 1 if Dividendsit or Repurchasesit > 0, and 0 otherwise. PayLevit = sum of Dividendsit and Repurchasesit, scaled total assets (at) at the end of year t-1. RepMixit = Repurchasesit minus Dividendsit, scaled by total assets (at) at the end of year t-1 if PayIndit = 1, and missing otherwise. RepRatioit = Repurchasesit divided by total payout (Dividendsit plus Repurchasesit) if PayIndit = 1, and missing otherwise. Primary Independent Variables of Interest:LowFETR5it = 1 if FETRit is five or more percentage points below the U.S. statutory tax rate in year t, and 0 otherwise. FETRit equals current foreign tax expense of firm i (txfo) summed over years t-2 to t divided by foreign pre-tax income (pifo) summed over years t-2 to t for firms with positive three-year cumulative foreign pre-tax income and is winsorized to lie between zero and one. If firm i's threeyear cumulative foreign pre-tax income is zero or negative, LowFETR5it equals zero. LowFETR10it = 1 if FETRit is ten or more percentage points below the U.S. statutory tax rate in year t, and 0 otherwise. If firm i's three-year cumulative foreign pretax income is zero or negative, LowFETR10it equals zero. eFORit = foreign pre-tax income (pifo) of firm i in year t, scaled by total assets (at) at the end of year t-1. eUSit = domestic pre-tax income (pidom) of firm i in year t, scaled by total assets (at) at the end of year t-1. If domestic pre-tax income is missing, it is set equal to the difference between total pre-tax incom...

show abstract

Payout Policy

Cited by 28 publications

References 196 publications

Off‐Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates

Off‐Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates

Levered Returns

The U.S. Tax and Financial Reporting Treatment of Foreign Earnings and U.S. Multinational Companies' Payout Policies

Contact Info

Product

Resources

About