Why Do Companies Pay Dividends?

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Why Do Companies Pay Dividends?

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Title: Why Do Companies Pay Dividends?
Author: Feldstein, Martin; Green, Jerry

Note: Order does not necessarily reflect citation order of authors.

Citation: Feldstein, Martin, and Jerry Green. 1983. Why do companies pay dividends? American Economic Review 73, no. 1: 17-30.
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Abstract: 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.
Published Version: http://www.jstor.org/stable/1803923
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3204679
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