Taxable Cash Dividends


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Taxable Cash Dividends

Vis færre oplysninger Bechmann, Ken L. en_US Raaballe, Johannes en_US 2009-02-04T10:26:16Z 2009-02-04T10:26:16Z 2005-09-16T00:00:00Z en_US
dc.identifier.isbn 8790705955 en_US
dc.description.abstract Firms pay out cash using both dividends and share repurchases. In many aspects these two means are similar, but one important difference is that dividends are generally taxed more heavily than share repurchases. Nevertheless firms persist in paying out large amounts in dividends. This paper provides an explanation for this dividend puzzle by developing a class of signaling models violating the "single-crossing" property in which information about the quality of the firm is asymmetric between the management and the shareholders. In these models a high-quality firm can always signal its quality by using share repurchases only. However, in certain cases share repurchases become costlier on the margin for a high-quality firm than for a low-quality imitator. In such cases, the high-quality firm signals most cost efficiently by means of a combination of share repurchases and taxable cash dividends financed by the issuance of new shares. Taxable cash dividends financed by the issuance of new shares then can be considered a positive kind of money burning whose role is to signal a firm’s high quality. The implications of the models are consistent with several important empirical facts about dividends and share repurchases. Thus, this paper’s main contribution is to examine a range of new signaling models that provides a role for taxable cash dividends and share repurchases and to derive their empirical implications. Key words: Dividends, Share Repurchases, Signaling, Single-Crossing Property, Money Burning JEL Classification: G35, D82 en_US
dc.format.extent 42 s. en_US
dc.language eng en_US
dc.relation.ispartofseries Working paper;2005-004 en_US
dc.subject.other money burning en_US
dc.subject.other single-crossing property en_US
dc.subject.other share repurchases en_US
dc.title Taxable Cash Dividends en_US
dc.type wp en_US
dc.accessionstatus modt05sep16 miel en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI en_US
dc.description.notes Current version: September 13, 2005 en_US
dc.idnumber 8790705955 en_US København en_US
dc.publisher.year 2005 en_US
dc.title.subtitle A Useful Way of Burning Money en_US

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