For the US companies The personal taxes of investors is the key factor managers consider when establishing a dividend policy.
If the shareholder tax rate on dividends is high, the manager would rather pay a smaller dividend and reinvest the profits back into the company, increasing its overall value and providing investors with a capital gain. A company's dividend policy determines how its dividend payments to shareholders will be made. Fundamentally, according to a few researchers, the dividend policy is irrelevant because investors could transfer a piece of their investment portfolio or shares if they need income.
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