A Theory of Dividends Based on Tax Clienteles
BibTeX
@MISC{Antonio_atheory,
author = {Franklin Allen Antonio and Antonio E. Bernardo and Ivo Welch and Kathleen Fitzgerald and Avraham Kamara and Jiang Luo and Hamid Mehran and Avanidhar Subrahmanyam and Richard Vines},
title = {A Theory of Dividends Based on Tax Clienteles},
year = {}
}
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Abstract
This paper explains why some firms prefer to pay dividends rather than repurchase shares. When institutional investors are relatively less taxed than individual investors, dividends induce "ownership clientele" effects. Firms paying dividends attract relatively more institutions, which have a relative advantage in detecting high firm quality and in ensuring firms are well managed. The theory is consistent with some documented regularities, specifically both the presence and stickiness of dividends, and offers novel empirical implications, e.g., a prediction that it is the tax difference between institutions and retail investors that determines dividend payments, not the absolute tax payments. # Allen is from the Wharton School at the University of Pennsylvania. Bernardo and Welch are from the Anderson School at UCLA. The authors thank Laurie Hodrick, Shlomo Benartzi, Charles Calomiris, Mark Grinblatt, Kathleen Fitzgerald, Avraham Kamara, Jiang Luo, Hamid Mehran, Avanidhar Subra...
