If dividends are taxed at a higher personal tax rate than capital gains, shareholders will generally prefer share repurchases to dividends.

Question

Quizplus · Accepted Answer

Shareholders prefer share repurchases over dividends when dividends are taxed at a higher personal tax rate than capital gains because capital gains are taxed at a lower rate. Share repurchases allow shareholders to sell their shares at a higher price than the original purchase and pay lower taxes on the capital gains.

If Dividends Are Taxed at a Higher Personal Tax Rate