Dividends and Corporate Shareholders
Michael J. Barclay
University of Rochester - Simon School (Deceased)
Clifford G. Holderness
Boston College - Department of Finance
Dennis P. Sheehan
Pennsylvania State University
Review of Financial Studies, Forthcoming
Corporations uniquely have a tax preference for cash dividends. Nevertheless, dividends do not increase following trades of large-percentage blocks of stock from individuals to corporations. Moreover, although one-third of firms have corporate blockholders, 68% of these firms pay no dividends, and ownership is not clustered at levels that increase the tax benefits of dividends. These findings are not driven by the investing firms' tax rates or by agency problems. Instead, operating companies expand the target firms and pursue joint ventures. Dividends are lower with these investors. Financial investors are not attracted to dividend-paying firms and tend to be passive.
Number of Pages in PDF File: 66
Keywords: Dividends, Corporate Blockholders, Taxes
JEL Classification: G30, G32, G35
Date posted: June 5, 2007
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