Hostname: page-component-669899f699-chc8l Total loading time: 0 Render date: 2025-04-27T23:03:17.906Z Has data issue: false hasContentIssue false
  • English
  • Français

The Corporate Dividend-Saving Decision

Published online by Cambridge University Press:  19 October 2009

Robert C. Higgins
Get access Rights & Permissions [Opens in a new window]

Extract

The purpose of this paper is to derive and test a model of the dividend-saving decision for a shareholder wealth-maximizing firm. Starting with the basic proposition that shareholders should prefer capital gains income to dividend income in a world of differential taxes and transactions costs, dividends are viewed as basically a residual in the corporate decision process. The term residual does not imply that there is no dividend decision or that dividend policy does not affect the worth of the firm since, as argued, the selection of an optimal level of dividends in an uncertain environment still involves the forecasting of future investment needs and the selection of a dividend-saving program to finance these needs at minimum cost. The relevant costs in this context relate to the possible accumulation of excess liquidity resulting from insufficient dividends on the one hand and the possible need for external equity financing resulting from excessive dividends on the other.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 2 , March 1972 , pp. 1527 - 1541
Copyright
Copyright © School of Business Administration, University of Washington 1972

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

[1]Baxter, N. “Leverage, Risk of Ruin and the Cost of Capital.” Journal of Finance, September 1967.CrossRefGoogle Scholar
[2]Brittain, J. A.Corporate Dividend Policy. Washington, D.C., 1966.Google Scholar
[3]Brittain, J. A., “The Tax Structure and Corporate Dividend Policy.” American Economic Review, May 1964.Google Scholar
[4]Darling, P. G. “The Influence of Expectations and Liquidity on Dividend Policy.” Journal of Political Economy, June 1957.CrossRefGoogle Scholar
[5]Dhrymes, P. J., and Kurz, M.. “Investment, Dividend, and External Finance Behavior of Firms.” In Ferber, R., ed., Determinants of Investment Behavior. New York, National Bureau of Economic Research, 1967.Google Scholar
[6]Dhrymes, P. J., and Kurz, M.. “On the Dividend Policy of Electric Utilities.” Review of Economics and Statistics, February 1964.CrossRefGoogle Scholar
[7]Eisner, R. “Investment: Fact and Fancy.” American Economic Review, May 1963.Google Scholar
[8]Gordon, M.The Investment Financing and Valuation of a Corporation. Homewood, Illinois, 1962.Google Scholar
[9]Gordon, M. “Optimal Investment and Financing Policy.” Journal of Finance, May 1963.CrossRefGoogle Scholar
[10]Gordon, M. “The Savings, Investment and Valuation of the Corporation.” The Review of Economics and Statistics, February 1962.CrossRefGoogle Scholar
[11]Higgins, R. C. “Dividend Policy and Increasing Discount Rates.” Forthcoming in Journal of Financial and Quantitative Analysis.Google Scholar
[12]Lintner, J. “Distribution of Incomes of Corporations Among Dividends, Retained Earnings and Taxes.” American Economic Review, May 1956.Google Scholar
[13]Lintner, J. “Dividends, Earnings, Leverage, Stock Prices and the Supply of Capital to Corporations.” Review of Economics and Statistics, August 1962.CrossRefGoogle Scholar
[14]Miller, M., and Modigliani, F.. “Dividend Policy, Growth and the Valuation of Shares.” Journal of Business, October 1961.CrossRefGoogle Scholar
[15]Pogue, T. F. “The Corporate Dividend Decision: A Cross-Section Study of the Relationship between Dividends and Investment.” Unpublished working paper, University of Iowa.Google Scholar
[16]Turnovsky, S. J. “Financial Structure and the Theory of Production.” Journal of Finance, December 1970.CrossRefGoogle Scholar
[17]Van Home, J., and McDonald, J.. “Dividend Policy and New Equity Financing.” Journal of Finance, May 1971.CrossRefGoogle Scholar