1. Introduction

The previous section has shown that buybacks offer many advantages over dividend payments, in particular in countries such as the U.S., where buybacks also have a clear tax advantage.

However, the reality is that many firms still rely on dividend payments. As we have seen in the introductory chapter, total dividend payments by listed U.S. firms are about the same as the total buyback volume. In this section, we take a closer look at why that might be the case. In particular, we investigate the following aspects:

  • Desire for current income
  • Behavioral finance aspects
  • Information content and signaling
  • Agency costs
  • Clientele effects
  • Market Conditions.