NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Share Valuation and Corporate Equity Policy

Alan J. Auerbach

NBER Working Paper No. 255 (Also Reprint No. r0030)
Issued in 1980
NBER Program(s):   PE

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.

download in pdf format
   (159 K)

email paper

This paper is available as PDF (159 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

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

Users who downloaded this paper also downloaded these:
Bradford w0349 The Incidence and Allocation Effects of a Tax on Corporate Distributions
Poterba and Summers w1353 The Economic Effects of Dividend Taxation
Desai, Foley, and Hines w8698 Dividend Policy inside the Firm
Auerbach w0254 Wealth Maximization and the Cost of Capital
Auerbach and Hassett w11449 The 2003 Dividend Tax Cuts and the Value of the Firm: An Event Study
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us