@techreport{NBERw3434,
 title = "Tax Policy and the Dividend Puzzle",
 author = "B. Douglas Bernheim",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "3434",
 year = "1990",
 month = "September",
 URL = "http://www.nber.org/papers/w3434",
 abstract = {This paper offers a new explanation of the dividend puzzle, based upon a model in which firms attempt to signal profitability by distrubuting cash to shareholders. I assume that dividends and repurchases are identical, except that dividends are taxed more heavily. Nevertheless, I demonstrate that, under certain plausible conditions, corporations will pay dividends. Indeed, some firms will actually pay dividends, and then retrieve a portion of these payments by issuing new equity (perhaps through a dividend reinvestment plan), despite the fact that this appears to create gratuitous tax liabilities. In addition to providing an explanation for the dividend puzzle, I also derive a number of strong results concerning corporate payout decisions and government tax policy. Some of these results are surprising. For example, the relationship between repurchases and firm quality is hump-shaped. Moreover, despite the fact that a higher dividend tax rate depresses dividend payments, it does not affect either government revenue or welfare. },
}