Share valuation and corporate equity policy
In recent years many contributions have appeared which examine the effects of corporate and personal taxation on firm financial policy. However, there has yet to appear an adequate explanation of why corporations continue to distribute dividends despite their disadvantageous tax treatment. We study this problem anew, in the context of an overlapping generations growth model with corporations financed by equity. Among our findings are: (1) capital owned by corporations may well be undervalued, even in the long run; (2) as a result of such undervaluation, firms may find it in the best interest of their stockholders to distribute dividends; and (3) an increase in the tax on distributions, while depressing the return to personal saving, may lead to an increase in the capital intensity of the economy. We also consider the criterion firms will use in evaluating new investment projects.
(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.
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.:
- Stiglitz, Joseph E., 1976. "The corporation tax," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 303-311.
- Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
- King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
- Peter A. Diamond, 1967.
"Incidence of an Interest Income Tax,"
5, Massachusetts Institute of Technology (MIT), Department of Economics.
- Marc Nerlove, 1967. "Recent Empirical Studies of the CES and Related Production Functions," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 55-136 National Bureau of Economic Research, Inc.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- Alan J. Auerbach, 1980.
"Wealth Maximization and the Cost of Capital,"
NBER Working Papers
0254, National Bureau of Economic Research, Inc.
- Stapleton, R C, 1972. "Taxes, the Cost of Capital and the Theory of Investment," Economic Journal, Royal Economic Society, vol. 82(328), pages 1273-92, December.
- Feldstein, Martin S, 1974. "Incidence of a Capital Income Tax in a Growing Economy with Variable Savings Rates," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 505-13, October.
- Feldstein, Martin S, 1970. "Inflation, Specification Bias, and the Impact of Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 78(6), pages 1325-39, Nov.-Dec..
- 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.
- Flemming, J. S., 1976. "A reappraisal of the corporation income tax," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 163-169.
When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:11:y:1979:i:3:p:291-305. 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: (Zhang, Lei)
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.