Taxes, Financing Decisions, and Firm Value

Center for Research in Security Prices (CRSP) Working Paper No.

34 Pages Posted: 1 Feb 1997  

Eugene F. Fama

University of Chicago - Finance

Kenneth R. French

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 1997

Abstract

We use cross-section regressions to study how a firm's value is related to dividends and debt. With a good control for profitability, the regressions can measure how the taxation of dividends and debt affects firm value. Simple tax hypotheses say that value is negatively related to dividends and positively related to debt. We find the opposite. We infer that dividends and debt convey information about profitability (expected net cash flows) missed by a wide range of control variables. This information about profitability obscures any tax effects of financing decisions.

JEL Classification: G12, G14, G32

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Taxes, Financing Decisions, and Firm Value (May 1997). Center for Research in Security Prices (CRSP) Working Paper No.. Available at SSRN: https://ssrn.com/abstract=1871 or http://dx.doi.org/10.2139/ssrn.1871

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

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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