NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Money Burning: Theory and Application to Corporate Dividend Policy

B. Douglas Bernheim, Lee Redding

NBER Working Paper No. 5682
Issued in July 1996
NBER Program(s):   PE

We explore signaling behavior in settings with a discriminating signal and several costly nondiscriminating ( money burning ) activities. In settings where informed parties have many options for burning money, existing theory provides no basis for selecting one nondiscriminating activity over another. When senders have private information about the costs of these activities, each sender's indifference is resolved, the taxation of a nondiscriminating signal is Pareto improving, and the use of the taxed activity becomes more widespread as the tax rate rises. We apply this analysis to the theory of dividend signaling. The central testable implication of the model is verified empirically.

download in pdf format
   (1568 K)

email paper

This paper is available as PDF (1568 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5682

Published: B. Douglas Bernheim & Lee S. Redding, 2001. "Optimal Money Burning: Theory and Application to Corporate Dividends," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(4), pages 463-507, December.

Users who downloaded this paper also downloaded these:
Desai, Foley, and Hines w8698 Dividend Policy inside the Firm
Bernheim w3434 Tax Policy and the Dividend Puzzle
Lehmann w3676 Earnings, Dividend Policy, and Present Value Relations: Building Blocks of Dividend Policy Invariant Cash Flows
DeAngelo, DeAngelo, and Stulz w10599 Dividend Policy, Agency Costs, and Earned Equity
Dent and Geweke On Specification in Simultaneous Equation Models
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

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

Contact Us