Portal de Periódicos da CAPES

Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy

1979; Volume: 10; Issue: 1 Linguagem: Inglês

10.2307/3003330

2326-3032

Sudipto Bhattacharya,

Corporate Taxation and Avoidance

This paper assumes that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains. It is shown that under these conditions, such dividends function as a signal of expected cash flows. By structuring the model so that finite-lived investors turn over continuing projects to succeeding generations of investors, we derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons.