Investors in high marginal tax brackets usually prefer companies that reinvest most of their earnings, thus creating more growth in earnings and stock prices and deferring taxes into the future.

Question

Quizplus · Accepted Answer

This is true because if high marginal tax bracket investors receive dividends, they will have to pay taxes on them immediately, which reduces their overall return. By reinvesting earnings, the company can create more growth that can result in higher stock prices, allowing the investor to defer taxes into the future while still benefiting from the increase in wealth.

Investors in High Marginal Tax Brackets Usually Prefer Companies That