Many executives own shares in the companies they manage and are also in high tax brackets....

 

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Many executives own shares in the companies they manage and are also in high tax brackets. When faced with the choice between declaring dividends and repurchasing shares, managers may opt to repurchase shares as it is not a taxable event for them unless they sell their shares and with fewer shares outstanding, the stock price will likely rise. The company's investors may prefer dividend payments. Given the discussion in the introduction to the course, this is an example of what theory in action? Many executives own shares in the companies they manage and are also in high tax brackets. When faced with the choice between declaring dividends and repurchasing shares, managers may opt to repurchase shares as it is not a taxable event for them unless they sell their shares and with fewer shares outstanding, the stock price will likely rise. The company's investors may prefer dividend payments. Given the discussion in the introduction to the course, this is an example of what theory in action?

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This example illustrates the principle of agency theory in act... View the full answer