Journal ArticleDOI
Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy
TLDR
In this article, the authors assume that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains, and they derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons.Abstract:
This paper assumes that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains. It is shown that under these conditions, such dividends function as a signal of expected cash flows. By structuring the model so that finite-lived investors turn over continuing projects to succeeding generations of investors, we derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons.read more
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Corporate financing and investment decisions when firms have information that investors do not have
TL;DR: In this paper, a firm that must issue common stock to raise cash to undertake a valuable investment opportunity is considered, and an equilibrium model of the issue-invest decision is developed under these assumptions.
Journal ArticleDOI
The investment opportunity set and corporate financing, dividend, and compensation policies☆
Clifford W. Smith,Ross L. Watts +1 more
TL;DR: The authors examine explanations for corporate financing-, dividend-, and compensation-policy choices and find that contracting theories are more important in explaining cross-sectional variation in observed financial, dividend, and compensation policies than either tax-based or signaling theories.
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Corporate Financing and Investment Decisions When Firms Have Informationthat Investors Do Not Have
TL;DR: In this paper, a firm that must issue common stock to raise cash to undertake a valuable investment opportunity is considered, and an equilibrium model of the issue-invest decision is developed under these assumptions.
Journal ArticleDOI
Dividend Policy under Asymmetric Information
Merton H. Miller,Kevin Rock +1 more
TL;DR: In this article, the authors extend the standard finance model of the firm's dividend/investment/financing decisions by allowing the managers to know more than outside investors about the true state of the current earnings.
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Two Agency-Cost Explanations of Dividends
TL;DR: In this article, the authors consider the problem of aligning managers' interests with those of investors and offer agency-cost explanations of dividends, and conclude that "these two lines of inquiry rarely meet." Yet logically any dividend policy should be designed to minimize the sum of capital, agency and taxation costs.
References
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Journal Article
The Cost of Capital, Corporation Finance and the Theory of Investment
TL;DR: In this article, the effect of financial structure on market valuations has been investigated and a theory of investment of the firm under conditions of uncertainty has been developed for the cost-of-capital problem.
Journal ArticleDOI
Dividend Policy, Growth, and the Valuation of Shares
TL;DR: In this paper, the effect of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty is examined.
Journal ArticleDOI
Informational asymmetries, financial structure, and financial intermediation
TL;DR: This paper argued that the average quality is likely to be low, with the consequence that even projects which are known (by the entrepreneur) to merit financing cannot be undertaken because of the high cost of capital resulting from low average project quality.
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The determination of financial structure: the incentive-signalling approach
TL;DR: In this paper, the authors show that if managers possess inside information about the activities of firms, then the choice of a managerial incentive schedule and of a financial structure signals information to the market, and in competitive equilibrium the inferences drawn from the signals will be validated.
Journal ArticleDOI
Debt and taxes
TL;DR: Miller et al. as discussed by the authors presented a paper on the thirty-fiveth annual meeting of the American Finance Association, Atlantic City, New Jersey, September 16-18, 1976 (May, 1977), pp. 261-275.