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This study investigates whether the difference in individual shareholder tax rates between dividend income and capital gain (the dividend tax penalty) affects a firm's choice between distributing funds to shareholders through dividends or share repurchases. The results of this study suggest that, in periods in which the dividend tax penalty increases, firms are more likely to distribute funds to shareholders through share repurchases as opposed to dividends. The results also indicate that the relationship between the dividend tax penalty and corporate payout choice is affected by the types of shareholders who own stock in the firm. As managerial share ownership increases and the dividend tax penalty increases firms are more likely to make distributions to shareholders in the form of share repurchases. As aggregate institutional ownership increases and the dividend tax penalty increases, firms are neither more likely to repurchase shares nor more likely to distribute dividends. Division of the institutional ownership category indicates that institutions classified as mutual funds and investment advisors (brokers) have the strongest preference for share repurchases as the dividend tax penalty increases. In contrast, institutions classified as banks, insurance companies and other institutions have the smallest preference for share repurchases as the dividend tax penalty increases. The implication of this study is that individual shareholder taxes affect firms' corporate payout choice.

Securities legislation in Canada and around the world does not mandate firms to fulfill announced share repurchase programs. As such, a firms repurchase program completion rate can be interpreted as a measure of the firms voluntary compliance, which communicates to investors the degree to which the firm is responsible, reliable and makes good faith efforts to fulfill its announced programs. We therefore expect that the voluntary compliance may reduce the riskiness of a firm and thus its cost of capital. In a sample of Canadian repurchase programs announced between 1995 and 2004, surprisingly, we find little evidence to suggest that a significant relationship exists between the firms repurchase program completion rate and the cost of equity. We present a number of explanations for this result.

Securities legislation in Canada and around the world does not mandate firms to fulfill announced share repurchase programs. As such, a firms repurchase program completion rate can be interpreted as a measure of the firms voluntary compliance, which communicates to investors the degree to which the firm is responsible, reliable and makes good faith efforts to fulfill its announced programs. We therefore expect that the voluntary compliance may reduce the riskiness of a firm and thus its cost of capital. In a sample of Canadian repurchase programs announced between 1995 and 2004, surprisingly, we find little evidence to suggest that a significant relationship exists between the firms repurchase program completion rate and the cost of equity. We present a number of explanations for this result.

In this paper we examine abnormal returns during active repurchasing programs and if the intensity of repurchasing programs impacts the returns. Through the Jensen’s Alpha approach our findings show us that positive abnormal returns are experienced by repurchasing firms under our study period that ranges from 2010 to 2019. The results show us that during active repurchasing programs companies have showed positive average annual abnormal returns ranging from 1,8% to 6%. We also find that the intensity of share repurchases does not have a statistically significant effect on the given abnormal returns. However, our results indicate that the abnormal returns are higher when the repurchases occurred, rather than when they are authorized.

Since the dividend irrelevance theory of Miller and Modigliani (1961), academics and practitioners still have little understanding of the managerial incentives underpinning dividend policy. Black (1976) observed, “The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just don’t fit together.” <br /> <br /> This thesis aims to shed additional light on the dividend puzzle. Accordingly, two theoretical models have been developed to help explain why firms pay dividends or repurchase their own shares. The models consider the case in which the managers of a high-quality firm (firm H) and a low-quality firm (firm L) choose to use corporate cash flows to pay dividends, repurchase shares, or invest in a real project from which they can earn private benefits. I focus on the case in which firm H has a positive NPV project whereas firm L has a negative NPV project. <br /> <br /> In the first model, developed in spirit of Isagawa (2000), I show that paying dividends is a dominated strategy for firm H, regardless of the managerial weight parameter. If the manager is myopic, firm L will choose to repurchase shares at the detriment of existing shareholders. If the manager is farsighted, on the other hand, firm L will choose to pay dividends. I also consider the case in which investors are irrational in that they do not update their beliefs upon observing one firm repurchasing shares while the other firm paying dividends. The model shows that, in inefficient market, firm L will not mimic given that firm H repurchases shares since it cannot obtain any benefit from doing so. <br /> <br /> In the second model, built on Fairchild and Zhang’s (2005) work, in which the managerial payout decisions depend on the relative magnitudes of dividend and repurchase catering premia, I demonstrate that a myopic manager of firm H may pass up a positive NPV project in order to cater to investor demand for dividends or share repurchases (an adverse selection problem). In addition, I show that the agency cost of free cash flow can be mitigated if the dividend-catering premium is sufficiently high. That is, firm L’s manager will have a strong incentive to return excess cash to shareholders rather than invest it in a negative NPV project. <br /> <br /> Then, I investigate dividend changes in Thailand over the period 2002-2005. To test the signalling and free cash flow hypotheses, I first analyse profitability changes around dividend changes and benchmark them with control firms, and examine the relation between dividend changes and the past and future profitability. Consistent with Benartzi et al.’s (1997) evidence in the U.S., dividend changes in Thailand do not signal future profitability but rather the past performance. Then, I examine the determinants of dividend changes and firm’s decision to change dividends. I also investigate the short-run and long-run stock price performance of dividend-changing firms, and the relation between announcement returns and hypothesised independent variables. Finally, I examine firms’ investment behaviour following dividend changes. The results do not support the view that dividend changes signal future profitability. Overall, the findings are broadly consistent with the free cash flow hypothesis rather than the signalling hypothesis. <br /> <br /> Additionally, I provide preliminary evidence on open-market share repurchases (OMRs) in Thailand over the period December 2001 to January 2007. I find that stock prices react positively to OMR announcements and continue to increase in the longer term, suggesting that stock market underreacts to the signal conveyed by the managers of repurchasing firms. Comparing the actual repurchase cost with the costs of benchmark portfolios, I find that the actual repurchase cost is the lowest. This finding suggests that the managers of repurchasing firms have substantial ability to time the market.

<p>The paper studies share repurchases done by 50 randomly chosen U.S. publicly traded companies between 1996 and 2007 and checks if they could have been done at more advantageous prices for long-term shareholders in the two years following repurchases. The paper argues that the lower the price at which a repurchase is done the better it is for long-term shareholders.</p><p> </p><p>The results indicate that on average for 37 % of the years in which a company repurchased shares, it could have done it at a price at least 25 % lower in the next two years. When the results are weighted to take into account the dollar amounts spent on repurchases each year, the figure increases to 56 %. The paper looks also at if the repurchases could have been done at a price at least 50 % lower in the next two years. The unweighted results show that on average it would have been possible for 17 % of the years in which a company repurchased shares. When the result is weighted for the dollars spent on repurchases each year the proportion increases to 32 %.</p><p> </p><p>The results show also that the companies increased massively their repurchases just before the stock market crash that started in the late 2007.</p>

The paper studies share repurchases done by 50 randomly chosen U.S. publicly traded companies between 1996 and 2007 and checks if they could have been done at more advantageous prices for long-term shareholders in the two years following repurchases. The paper argues that the lower the price at which a repurchase is done the better it is for long-term shareholders.   The results indicate that on average for 37 % of the years in which a company repurchased shares, it could have done it at a price at least 25 % lower in the next two years. When the results are weighted to take into account the dollar amounts spent on repurchases each year, the figure increases to 56 %. The paper looks also at if the repurchases could have been done at a price at least 50 % lower in the next two years. The unweighted results show that on average it would have been possible for 17 % of the years in which a company repurchased shares. When the result is weighted for the dollars spent on repurchases each year the proportion increases to 32 %.   The results show also that the companies increased massively their repurchases just before the stock market crash that started in the late 2007.

This dissertation consists of 2 essays in the area of corporate finance. The title of my first essay is “Impact of Institutional Investors on Firms’ Financial Constraint and Liquidity”. We can find ample evidences in existing literature which show that institutional investors play a vital role in the corporate world. Many researchers have linked institutional investors to activism, monitoring benefits, mitigating the cost of debt using government bond, spin off activities and improving information asymmetry problem. In the first essay, I would like to add another dimension to institutional investors’ literature by examining institutional investors’ role in mitigating financial constraint problem in the firm. Institutional investors have large financial networks and make large financial investment in firms. Their presence might help firms attract external capital. I am using 2 financial constraint measurements; KZ index (Lamont, Polk, Saa-Requejo, 2001) and bank line of credit (Sufi, 2009). I am also adding additional measurement for financial constraint using notes payable. I find evidences to support the hypotheses that institutional investors’ presence and ownership mitigate financial constraints. The title of my second essay is “Long- and Short-Term Institutional Investors and Payout Policy”. In the second essay, I examine the relationship between the firms’ payout policy and the presence/ownership of certain type of institutional investors. I classify the types of institutional investors using Bushee’s (1998, 2001) classification of institutional investors. I find that the presence and the magnitude of long term institutional investors positively affect the likelihood and the magnitude of dividend. I also find that the presence and the magnitude of short term institutional investors positively affect the likelihood and the magnitude of share repurchases. This study suggests that the presence of different types of institutional investors can affect certain type of payout policy. Keywords: Transient; dedicated; monitoring; trading

This paper investigates determinants of payout levels and payout composition in multinational corporations and domestic corporations and how payout differs between the two, as well as the effect of a country’s legal tradition on payout, on a worldwide sample. My main findings are that multinational corporations’ total payout is slightly lower than domestic corporations’ payout when taking into account a country’s legal tradition affects. No support is found that multinationals and domestic corporations differ in payout composition and payout composition is not changing over time, according to my results. My findings are partly consistent with theories on how ownership structures and agency problems affect payout policy. Still, the puzzle in unsolved.