Valuation, Personal Taxes, and Dividend Policy under Passive Debt Management

30 Pages Posted: 6 Nov 2019

See all articles by Stefan Dierkes

Stefan Dierkes

Georg August Universität

Johannes Sümpelmann

University of Goettingen (Gottingen)

Date Written: January 11, 2019

Abstract

We derive consistent valuation models in accordance with the flow to equity and adjusted present value approaches, which allow accounting for the firm’s dividend policy and passive debt management in light of differentiated personal taxes at the equity investor level. Specifi-cally, we establish appropriate adjustment formulas for the relationship between the firm’s unlevered and levered cost of equity, which are the basis for the unlevering and relevering of beta factors. Furthermore, using simulations, we show that dividend policy has a significantly positive effect on equity market value.

Keywords: valuation, personal taxes, passive debt management, dividend policy, cost of equity

JEL Classification: G32, H20, M41

Suggested Citation

Dierkes, Stefan and Sümpelmann, Johannes, Valuation, Personal Taxes, and Dividend Policy under Passive Debt Management (January 11, 2019). Available at SSRN: https://ssrn.com/abstract=3314012 or http://dx.doi.org/10.2139/ssrn.3314012

Stefan Dierkes

Georg August Universität ( email )

Platz der Göttinger Sieben 5
Göttingen, DE 37073
Germany

Johannes Sümpelmann (Contact Author)

University of Goettingen (Gottingen) ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

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