A Theory of Dividends Based on Tax Clienteles
Franklin Allen,
Antonio Bernardo () and
Ivo Welch
Additional contact information
Antonio Bernardo: Finance Area
Yale School of Management Working Papers from Yale School of Management
Abstract:
This paper offers a novel explanation for why some firms prefer to pay dividends rather than repurchase shares. It is well-known that institutional investors are relatively less taxed than individual investors, and that this induces "dividend clientele" effects. We argue that these clientele effects are the very reason for the presence of dividends, because institutions have a relative advantage in monitoring firms or in detecting firm quality. Firms paying dividends attract relatively more institutions and perform better. The theory is consistent with some documented regularities, such as a reluctance of firms to cut dividends, and offers novel empirical implications, such as a prediction that is the tax difference between institutions and retail investors that determines dividend payments, not the absolute tax payments.
JEL-codes: G35 (search for similar items in EconPapers)
Date: 1998-06-25
References: Add references at CitEc
Citations: View citations in EconPapers (4)
Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=96608 (application/pdf)
Related works:
Journal Article: A Theory of Dividends Based on Tax Clienteles (2000) 
Working Paper: A Theory of Dividends Based on Tax Clienteles 
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:ysm:somwrk:ysm92
Access Statistics for this paper
More papers in Yale School of Management Working Papers from Yale School of Management Contact information at EDIRC.
Bibliographic data for series maintained by ().