Tax implications of dividend policy

Abstract

The focus of debates about dividend policy is whether any given extent of dividend pay-out creates added value for the shareholders – i.e. whether any price change is induced by such alterations of the dividend level that are announced currently or expected in the future. In the most simple way the main problem of dividend policy is to pay out the profit as dividend or to reinvest in the company as a plow-back. It seems, that several factors influence the firms’ dividend policy: risk, taxes, costs, information, shareholders clienteles, shareholders’ behaviour etc. I will deal only the tax effects.