Dividends and Profits: Some Unsubtle Foreign Influences

57 Pages Posted: 13 Sep 2010

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Date Written: June 1991

Abstract

American corporations earn a large and growing share of their profits from their foreign operations. This paper evaluates the effect of foreign earnings on dividend payments by American corporations. The results suggest that the effect may be rather dramatic: that, all other things equal, U.S. corporations pay dividends out of foreign earnings at rates that are three times higher than their payout rates from domestic earnings. Why firms do so is unclear, though this behavior may be consistent with a signaling view of dividends. There is a curious tax consequence of this high payout rate on foreign earnings: the tax system, which grants foreign tax credits to U.S. corporations for the foreign taxes they pay, may receive more revenue from taxing the dividends of U.S. shareholders than from the corporate tax on foreign earnings.

Suggested Citation

Hines, James Rodger, Dividends and Profits: Some Unsubtle Foreign Influences (June 1991). NBER Working Paper No. w3730. Available at SSRN: https://ssrn.com/abstract=1675696

James Rodger Hines (Contact Author)

University of Michigan ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

NBER

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Cambridge, MA 02138
United States

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