Abstract

http://ssrn.com/abstract=1454
 
 

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Investment Decisions, Financing Decisions, and Firm Value


Eugene F. Fama


University of Chicago - Finance

Kenneth R. French


Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

October 1996


Abstract:     
We estimate that the average value of a dollar invested in the U.S. corporate sector is $1.18. When we delete utilities and current assets, where opportunities for value added seem limited, the estimate jumps to $1.68. We use cross-section regressions to study how value is related to dividends and debt. The regressions can potentially identify tax effects, but they cannot disentangle other factors, including bankruptcy costs, agency costs, and asymmetric information. Simple tax stories say value is negatively related to dividends and positively related to debt, but we find the opposite. We infer that dividends and debt convey information about profitability that obscures any tax effects.

JEL Classification: G30

working papers series


Not Available For Download

Date posted: January 27, 1997  

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Investment Decisions, Financing Decisions, and Firm Value (October 1996). Available at SSRN: http://ssrn.com/abstract=1454

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
Kenneth R. French
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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