A Theory of Dividends Based on Tax Clienteles
AbstractThis paper explains why some firms prefer to pay dividends rather than repurchase shares. When institutional investors are relatively less taxed than individual investors, dividends induce "ownership clientele" effects. Firms paying dividends attract relatively more institutions, which have a relative advantage in detecting high firm quality and in ensuring firms are well managed. The theory is consistent with some documented regularities, specifically both the presence and stickiness of dividends, and offers novel empirical implications, e.g., a prediction that it is the tax difference between institutions and retail investors that determines dividend payments, not the absolute tax payments. Copyright The American Finance Association 2000.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 55 (2000)
Issue (Month): 6 (December)
Other versions of this item:
- Franklin Allen & Antonio Bernardo & Ivo Welch, . "A Theory of Dividends Based on Tax Clienteles," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 15-98, Wharton School Rodney L. White Center for Financial Research.
- Franklin Allen & Antonio Bernardo & Ivo Welch, 1998. "A Theory of Dividends Based on Tax Clienteles," Yale School of Management Working Papers, Yale School of Management ysm92, Yale School of Management.
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
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