Share Valuation and Corporate Equity Policy

Alan Auerbach

No 255, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

Date: 1980-01
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Auerbach, Alan J. "Share Valuation and Corporate Equity Policy." Journal of Public Economics, Vol. II, (1979), pp. 291-305.

Downloads: (external link)
http://www.nber.org/papers/w0255.pdf (application/pdf)

Related works:
Journal Article: Share valuation and corporate equity policy (1979)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:0255

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0255

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().