The Choice of Payout Policy for Investors

In recent years, the cost of repurchasing shares has reached a record level in US, partly due to the implementation of the Tax Reform in 2017, shareholder activity and record low borrowing costs. Thus, the repurchase of shares was sharply criticized. Therefore, it is necessary to determine whether these criticisms are justified. As part of this study, traditional theories have been studied that explain the choice of a policy for paying investors. The authors were highlighted by the main motives of companies when deciding on a payment mechanism. Having studied the existing theoretical aspects of the choice of payment policies and the trends of US repurchase, a regression analysis was carried out to comprehensively study the causes and consequences of the choice of payment policies. The results obtained are partially consistent with previous studies, due to the difference in research approaches. This work highlighted the new motives of management regarding the repurchase of shares and, most importantly, the positive consequences of initiating their programs The main data sources are the Thomson Reuters Eikon database and the annual financial statements of US non-financial companies in the period 2008-2019. The final sample consists of 121 companies in the period 2008-2019, the data type is panel. One of the main arguments against the buyback is that the companies that buy back the shares use capital for short-term purposes - the return of funds to shareholders at the expense of long-term goals. As a result of the regression analysis, it was found that managers of companies whose compensation incentives are based on the EPS indicator do not manipulate the purchase of shares for financial gain. An additional important proof is that companies do not miss investment opportunities, and the tendency to lower capital costs is consistent with the fact that companies are at the maturity stage of their life cycles and are not alternative attractive investment alternatives. A positive consequence of the growing role of share buybacks is the recycling of capital within the economy from companies with low productivity of invested capital to growing companies. Also, companies that initiate share buyback programs are often underestimated or have surplus funds. In addition, despite the increase in the debt burden, the company's management keeps it at a reasonable level and has all the necessary resources - long-term growth of free cash, profitability, subject to an economic downturn. Using the situation of reduced interest rates on borrowed funds, the effect of the stock boom had a positive impact on the US economy and contributed to its long-term growth due to the redistribution of funds. The 2017 Tax reform also triggered record share buyback costs by lowering the corporate tax rate for companies. The advantage of the buyback relative to dividends is flexibility, which is consistent with a temporary increase in profits and companies do not create investors' expectations for further buyback programs. Thus, the preferred choice of stock repurchases as a way of paying investors relatively stable dividend payments is effective, since the money returned to shareholders can be reinvested in companies with different growth profiles or capital requirements, effectively distributing capital throughout the US economy.