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Dividend Neutrality with Transaction Costs

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  • Huberman, Gur

Abstract

The author constructs an intertemporal model in which investors trade shares of a firm. All trading is done through competitive market makers. After the initial period and before the end of the planning horizon, information is asymmetrically distributed among traders, and the prices of investors who buy shares are higher than for those who sell shares. The presence of this deviation from the Walrasian paradigm notwithstanding, dividend policy does not affect the initial period's share price or shareholders' welfare. This result is robust to various extensions of the model. The author also considers fixed administrative transaction costs and shows that dividend policy is irrelevant in the presence of these transaction costs. Copyright 1990 by the University of Chicago.

Suggested Citation

  • Huberman, Gur, 1990. "Dividend Neutrality with Transaction Costs," The Journal of Business, University of Chicago Press, vol. 63(1), pages 93-106, January.
    • Handle: RePEc:ucp:jnlbus:v:63:y:1990:i:1:p:s93-106
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    Cited by:

    1. Sabur Mollah, 2011. "Do emerging market firms follow different dividend policies?," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 28(2), pages 118-135, June.

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