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Journal of Finance Vol. 53 No. 3 1998

Taxes, Financing Decisions, and Firm Value

Eugene F. Fama1; Kenneth R. French2

1 Graduate School of Business, University of Chicago · 2 Yale School of Management

Abstract

We use cross‐sectional 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.

DOI
10.1111/0022-1082.00036
Volume
53
Issue
3
Pages
819-843
Language
en
Sources
openalex crossref

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