Why Do Companies Pay Dividends?
CitationFeldstein, Martin, and Jerry Green. 1983. Why do companies pay dividends? American Economic Review 73, no. 1: 17-30.
AbstractThis 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.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:3204679
- FAS Scholarly Articles