Abstract

http://ssrn.com/abstract=317040
 
 

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Dividend Policy Inside the Multinational Firm


Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

C. Fritz Foley


Harvard Business School; National Bureau of Economic Research (NBER)

James R. Hines Jr.


University of Michigan; NBER

March 2003

EFA 2002 Berlin Meetings Presented Paper

Abstract:     
This paper analyzes dividend remittances by a large panel of foreign affiliates of U.S. multinational firms. The dividend policies of foreign affiliates, which convey no signals to public capital markets, nevertheless resemble those used by publicly held companies in paying dividends to diffuse common shareholders. Robustness checks verify that dividend policies of foreign affiliates are little affected by the dividend policies of their parent companies or parent company exposure to public capital markets. Systematic differences in the payout behavior of affiliates that differ in organizational form, and those that face differing tax costs of paying dividends, reveal the importance of tax factors; nevertheless, dividend policies are not solely determined by tax considerations. The absence of capital market considerations and the incompleteness of tax explanations together suggest that dividend policies are largely driven by the need to control managers of foreign affiliates. Parent firms are more willing to incur tax penalties by simultaneously investing funds while receiving dividends and to regularize dividend payments when their foreign affiliates are partially owned, located far from the United States, or in jurisdictions with inefficient judicial systems, all of which are implied by control theories of dividends.

Number of Pages in PDF File: 32

JEL Classification: F23, G31, G35, H25, H87

working papers series


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Date posted: June 24, 2002  

Suggested Citation

Desai, Mihir A. and Foley, C. Fritz and Hines Jr., James R., Dividend Policy Inside the Multinational Firm (March 2003). EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: http://ssrn.com/abstract=317040 or http://dx.doi.org/10.2139/ssrn.317040

Contact Information

Mihir A. Desai (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
C. Fritz Foley
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
James Rodger Hines
University of Michigan ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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