Return of capital (ROC) refers to principal payments back to "capital owners" (shareholders, partners, unitholders) that exceed the growth (net income/taxable income) of a business or investment.[1] It should not be confused with Rate of Return (ROR), which measures a gain or loss on an investment. It is essentially a return of some or all of the initial investment, which reduces the basis on that investment.[2]

ROC effectively shrinks the firm's equity in the same way that all distributions do. It is a transfer of value from the company to the owner. In an efficient market, the stock's price will fall by an amount equal to the distribution. Most public companies pay out only a percentage of their income as dividends. In some industries it is common to pay ROC.

Tax consequences

There will be tax consequences that are specific to individual countries. As examples only:


Time value of money

Some critics dismiss ROC or treat it as income, with the argument that the full cash is received and reinvested by the business or by the shareholder receiving it. It thereby generates more income and compounds. Therefore, ROC is not a "real" expense.

See also


  1. ^ Milanovic, Branko (2014-06-01). "The Return of "Patrimonial Capitalism": A Review of Thomas Piketty's Capital in the Twenty-First Century". Journal of Economic Literature. 52 (2): 519–534. doi:10.1257/jel.52.2.519. hdl:10986/20541. ISSN 0022-0515.
  2. ^ Chen, Yu-Chiung; Liu, Jin-Tan (2022-06-01). "Seasoned equity offerings, return of capital and agency problem: Empirical evidence from Taiwan". Asia Pacific Management Review. 27 (2): 92–105. doi:10.1016/j.apmrv.2021.05.006. ISSN 1029-3132. S2CID 238044981.