TY  - JOUR
AU  - Feldstein,Martin
AU  - Green,Jerry
TI  - Why Do Companies Pay Dividends?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 413
PY  - 1979
Y2  - December 1979
UR  - http://www.nber.org/papers/w0413
L1  - http://www.nber.org/papers/w0413.pdf
N1  - Author contact info:
Martin S. Feldstein
President Emeritus
NBER
1050 Massachusetts Avenue
Cambridge, MA  02138-5398
Tel: 617/868-3905
Fax: 617/868-7194
E-Mail: msfeldst@nber.org

Jerry R. Green
Harvard Business School
Baker Library 469
Soldiers Field
Boston, MA 02163
Tel: 617/495-6859
E-Mail: jgreen@hbs.edu
AB  - This paper presents a simple model of market equilibrium to explain why firms that maximize the value of their shares pay dividends even though the funds could instead be retained and subsequently distributed to shareholders in a way that would allow them to be taxed more favorably as capital gains. The two principal ingredients of our explanation are:(1) the conflicting preferences of shareholders in different tax brackets and (2) the shareholders' desire for portfolio diversification, we show that companies will pay a positive fraction of earnings in dividends. We also provide some comparative static analysis of dividend behavior with respect to tax parameters and to the conditions determining the riskiness of the securities.
ER  -