The (Non-) Equivalence of Dividends and Share Buybacks
This paper analyzes optimal dividend and buyback policies in a general equilibrium model, highlighting managerial incentives and market frictions.
What it examines
The paper develops a general equilibrium model integrating investor portfolio choice, asset pricing, and optimal firm payout policies. It examines dividends versus share buybacks to determine their equivalence and differences, focusing on investment decisions, market-clearing outcomes, and managerial choices.
What it concludes
The study shows that while optimal dividends and buybacks yield identical shareholder welfare, buybacks generate higher share prices. This affects managerial incentives and investor compositions, suggesting applications in corporate finance strategies, market regulation, and policy design, and warrants further research on trading constraints and consumption effects.
Evidence objects
The paper reveals that dividends and share buybacks yield identical shareholder welfare, optimal distribution ratios, and equity distributed, echoing the classic $$\text{Modigliani-Miller}$$ theorem, yet surprising equilibrium price differences favor managers.
key_findings bullet 1 · key_findings · validation V0
Researchers develop an innovative, comprehensive general equilibrium model integrating investors' portfolio choices, asset pricing, and firms' payout decisions, introducing a consistent equilibrium definition for buyback strategies to maintain long-term stability.
key_findings bullet 2 · key_findings · validation V0
The study analyzes heterogeneous investor beliefs, endogenous riskfree rates, and trading constraints, revealing managerial incentives and investor limitations disrupt payout equivalence, though model assumptions might limit practical application with impact.
key_findings bullet 3 · key_findings · validation V0
The paper innovatively extends the classic $\text{Modigliani-Miller}$ framework by incorporating trading frictions and managerial incentives, providing fresh insights on firm value determination. Its equilibrium-based comparison of dividends and share buybacks offers a novel perspective that is both relevant and compelling for researchers in stock, equity, and quantitative finance, academically influential.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … equilibrium quantities when equity distribution happens … of equity distributed, and fractions of equity distribution. … managerial incentives and trading frictions under which …
Source row: 1979 · abstract type: snippet