Aggregate Dividend Research Articles

AN INTER‐TEMPORAL APPROACH TO THE OPTIMIZATION OF DIVIDEND POLICY WITH PRE‐DETERMINED INVESTMENT: REPLY

(1) IN A FURTHER COMMENT on Wallingford's [4] valuation model Lee [3] criticizes Brennan's [1] and my [2] comment for an improper derivation of the certainty equivalent of the aggregate dividends. Lee's critique stems from a misinterpretation. To see this note that the market value of the aggregate dividend can be derived by two methods leading to different results: (a) Wallingford first derives the expected utility of the random dividend per share D(t)/ N(t) which leads to the certainty equivalent d(t)=E[D(t)]/N(t)-a'Var[D(t)]/N(t)2. As all shares have the same market price, the market value (a) of the aggregate random dividend D(t) must be N(t)d(t) according to Wallingford's model. Hence N(t)d(t) is the certainty equivalent (a) of D(t) based on the valuation of a single share so that an infinite number of shares is optimal. Therefore Brennan and I propose: (b) Derive the expected utility of D(t) which leads to the certainty equivalent (b) (= market value (b)) D(t) = E [D(t)] a'Var[D(t)]. Hence D(t) is independent of N(t) which seems reasonable. (2) In his final result Lee claims that for k = 1 even Wallingford's model renders the number of shares, N(s), irrelevant. This result is due to an algebraic error in Lee's formula (9): As according to his formula (8) F(s) is independent of k, the correct version of formula (9) is:

AN INTER‐TEMPROAL APPROACH TO THE OPTIMIZATION OF DIVIDEND POLICY WITH PRE‐DETERMINED INVESTMENT: A FURTHER COMMENT

The Journal of FinanceVolume 32, Issue 4 p. 1358-1361 Comment AN INTER-TEMPROAL APPROACH TO THE OPTIMIZATION OF DIVIDEND POLICY WITH PRE-DETERMINED INVESTMENT: A FURTHER COMMENT Cheng F. Lee, Cheng F. LeeSearch for more papers by this authorManak Gupta, Manak GuptaAssociate Professor and Professor, University of Illinois, Urbana-Champaign and Temple University, respectively.Search for more papers by this author Cheng F. Lee, Cheng F. LeeSearch for more papers by this authorManak Gupta, Manak GuptaAssociate Professor and Professor, University of Illinois, Urbana-Champaign and Temple University, respectively.Search for more papers by this author First published: September 1977 https://doi.org/10.1111/j.1540-6261.1977.tb03336.x Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume32, Issue4September 1977Pages 1358-1361 RelatedInformation

On the Dividend Policy of Electric Utilities

D URING the past twenty years a great deal of econometric research has been directed toward the study of the saving behavior of economic units. Thus, personal saving has been explored quite intensively through (personal) consumption studies, especially so in the post-war period. The question of corporate saving, however, has in large measure been neglected, although a casual look at the data would disclose that it has ranged in magnitude from about 300 per cent of personal saving in 1947 to just under 50 per cent in recent years. Undeniably, this is a very significant component of total savings. By corporate saving we mean, of course, undistributed profits; hence, this question could be studied equivalently by studying the dividend policies of firms. On the latter topic some studies have been made and some tentative hypotheses have been formulated. The most widely held view in the recent literature is that propounded by Lintner in his pioneering contribution, [2] and [3]. Lintner's hypothesis states that corporations are conservative in their financial policy, and, consequently, their dividend disbursement activity is characterized by a considerable degree of inertia, and more precisely, that there exists some optimal or target dividend payment (per share) to which corporations adhere. Departures from this level are made only reluctantly, following a change in the level of profits which is deemed to be more or less permanent. Lintner's statistical analysis is based on time series data pertaining to aggregate corporate dividend disbursements and profits. His model has dividends at time t, explained by dividends at time t 1, and profits at time t. This is not a very satisfactory approach, except for shortrun prediction (of aggregate dividends), since it fails to account for apparently wide (intertemporal) variations in the dividend policy of various corporations, and does not go sufficiently far in elucidating the motives and factors involved in deciding the amount of corporate profits to be retained.

Dividend Underreporting on Tax Returns

A MERE CATALOGUE of the various headings under which the responses of individuals to high rates of corporate and personal income taxation might be analyzed would be larger than this paper. The briefest summary of all that has been conjectured on this same general problem would take up several volumes. Smaller would be the space required for a review of the established facts. It is this consideration that justifies our paper. For in a meager and modest way its findings fall in this latter category, with due recognition, of course, of the qualified nature of facts when discussing behavior. No analytical insights or play of powerful imagination will be set before you. Rather, I shall concentrate on the most direct and prosaic of responses to high tax rates, and even that in connection with a relatively small number of taxpayers. More specifically, this paper deals with the underreporting of dividends for tax purposes by examining the amount and, more particularly, the percentage of aggregate dividend receipts that cannot be accounted for on tax returns. It summarizes the evidence bearing on this matter with reference, initially, to two questions: (1) How important is the underreporting of dividends? (2) What has been the trend in dividend reporting on tax returns, i.e., has stockholders' zeal in reporting their dividend receipts varied in response to changes in tax rates?

DIVIDEND UNDERREPORTING ON TAX RETURNS

A MERE CATALOGUE of the various headings under which the responses of individuals to high rates of corporate and personal income taxation might be analyzed would be larger than this paper. The briefest summary of all that has been conjectured on this same general problem would take up several volumes. Smaller would be the space required for a review of the established facts. It is this consideration that justifies our paper. For in a meager and modest way its findings fall in this latter category, with due recognition, of course, of the qualified nature of facts when discussing behavior. No analytical insights or play of powerful imagination will be set before you. Rather, I shall concentrate on the most direct and prosaic of responses to high tax rates, and even that in connection with a relatively small number of taxpayers. More specifically, this paper deals with the underreporting of dividends for tax purposes by examining the amount and, more particularly, the percentage of aggregate dividend receipts that cannot be accounted for on tax returns. It summarizes the evidence bearing on this matter with reference, initially, to two questions: (1) How important is the underreporting of dividends? (2) What has been the trend in dividend reporting on tax returns, i.e., has stockholders' zeal in reporting their dividend receipts varied in response to changes in tax rates?