Why Do Companies Pay Dividends?
This paper presents a simple model of market equilibrium to explain why firms that maximize the value of their shares pay dividends even though the funds could instead be retained and subsequently distributed to shareholders in a way that would allow them to be taxed more favorably as capital gains. The two principal ingredients of our explanation are: (1) the conflicting preferences of shareholders in different tax brackets and (2) the shareholders' desire for portfolio diversification, we show that companies will pay a positive fraction of earnings in dividends. We also provide some comparative static analysis of dividend behavior with respect to tax parameters and to the conditions determining the riskiness of the securities.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 73 (1983)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: https://www.aeaweb.org/aer/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Auerbach, Alan J, 1979.
"Wealth Maximization and the Cost of Capital,"
The Quarterly Journal of Economics,
MIT Press, vol. 93(3), pages 433-46, August.
- Feldstein, Martin & Sheshinski, Eytan & Green, Jerry, 1979.
"Corporate Financial Policy and Taxation in a Growing Economy,"
3203643, Harvard University Department of Economics.
- Feldstein, Martin S & Green, Jerry & Sheshinski, Eytan, 1979. "Corporate Financial Policy and Taxation in a Growing Economy," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 411-32, August.
- David F. Bradford, 1979.
"The Incidence and Allocation Effects of a Tax on Corporate Distributions,"
NBER Working Papers
0349, National Bureau of Economic Research, Inc.
- Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
- Feldstein, Martin S & Slemrod, Joel, 1980.
"Personal Taxation, Portfolio Choice, and the Effect of the Corporation Income Tax,"
Journal of Political Economy,
University of Chicago Press, vol. 88(5), pages 854-66, October.
- Martin Feldstein & Joel Slemrod, 1980. "Personal Taxation, Portfolio Choice and The Effect of the Corporation Income Tax," NBER Working Papers 0241, National Bureau of Economic Research, Inc.
- Feldstein, Martin S, 1970. "Corporate Taxation and Dividend Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 37(1), pages 57-72, January.
- Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:73:y:1983:i:1:p:17-30. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.