Tax differential view

Tax differential view (of dividend policy)

The view that shareholders prefer capital gains over dividends, and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax Differential View of Dividend Policy

A theory stating that investors prefer capital gains to dividends because capital gains are usually taxed at a lower rate. A company whose management subscribes to this theory may concentrate on increasing its share price and is likely to have a low target payout ratio.
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