Changing perspectives on distribution policy

Abstract

PurposeThe purpose of this paper is to provide a synthesis of the literature on the changing perspectives of corporate distribution policy.Design/methodology/approachThis paper synthesizes and interprets the theoretical, empirical and survey‐based research on corporate payout policy.FindingsDividends once constituted a prominent part of an investor's total return, but this role has declined over time. Although many companies still pay cash dividends, share repurchases have risen dramatically and are now a significant component of payout.Research limitations/implicationsNew theories and perspectives on corporate distribution are likely to be introduced; while this paper represents an up‐to‐date view on the topic, it is not possible to anticipate new research developments that may affect some of the perspectives expressed herein.Practical implicationsNo single explanation fully accounts for the changes in distribution policy, most notably, the declining incidence of dividend‐paying firms and the increasing level of repurchase activity. Factors that explain the popularity of share repurchases in the USA include the improved regulatory environment, economic conditions, and the flexibility of repurchases relative to dividends. Developing a comprehensive model that explains the choice between dividends and share repurchase remains a challenge facing researchers.Originality/valueThe paper adds to the body of knowledge by providing an integrated perspective on dividends and share repurchase, summarizing decades of theoretical, empirical, and survey‐based research.