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The Role of Personal Taxes in Corporate Decisions: An Empirical Analysis of Share Repurchases and Dividends

Published online by Cambridge University Press:  06 April 2009

Erik Lie  and
Heidi J. Lie
Erik Lie
Affiliation:
School of Business Administration, College of William & Mary, PO Box 8795, Williamsburg, VA 23187.
Heidi J. Lie
Affiliation:
School of Business Administration, College of William & Mary, PO Box 8795, Williamsburg, VA 23187.
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Abstract

This study investigates the impact of personal taxation on corporate managers' choices between share repurchases and dividends as a means of disbursing cash. Consistent with the notion that personal taxation influences the choice of disbursement method, we find that managers are more likely to choose a share repurchase if the firm has a low dividend yield, if the firm's stock has experienced losses or small recent capital gains, and if the payout occured before the Tax Reform Act of 1986. Further, managers are more sensitive to the shareholders' tax situations if institutional investors hold a large fraction of the shares.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 34 , Issue 4 , December 1999 , pp. 533 - 552
Copyright
Copyright © School of Business Administration, University of Washington 1999

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