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for instance, allow investors to claim a tax credit on dividends, for taxes paid by the firms paying these dividends. Stock buybacks, therefore, provide a much greater tax benefit to investors in the United States than they do to investors outside the United States, by shifting income from dividends to capital gains. Second, stock buybacks are prohibited or tightly constrained in many countries. Third, a strong reason for the increase in stock buybacks in the United States has been pressure from stockholders on managers to pay out idle cash. This pressure is far less in the weaker corporate governance systems that exist outside the United States.

For the rest of this section, we will be using "dividend policy" to mean not just what gets paid out in dividends but also the cash that is returned to stockholders in the form of stock buybacks.

Illustration 11.1: Dividends and Stock Buybacks: Disney, Aracruz and Deutsche Bank

In the table that follows, we consider how much the Disney, Aracruz and Deutsche Bank have returned to stockholders in dividends, and how much stock they have bought back each year between 1994 and 2003.

Table 11.1: Cash Returned to Stockholders: Disney, Aracruz and Deutsche Bank (in millions)

Table 11.1: Cash Returned to Stockholders: Disney, Aracruz and Deutsche Bank (in millions)

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