Dividends and Profits: Some Unsubtle Foreign Influences

James R. Hines

41 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance International Business and FDI Corporate Taxation and Avoidance

Abstract

ABSTRACT American corporations earn a significant share of their profits from foreign sources, out of which they appear to pay dividends at rates that are three times higher than their payout rates from domestic profits. Why firms do so is unclear, although this behavior is consistent with the use of dividends to signal profitability. This payout behavior implies that a significant part of the U.S. tax revenue generated by the foreign profits of U.S. corporations arises through the taxation of dividends received by individuals, and that the cost of capital may be higher for foreign than for domestic operations.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1986Large Shareholders and Corporate Control 1961Dividend Policy, Growth, and the Valuation of Shares 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1992The investment opportunity set and corporate financing, dividend, and compensation policies 1985Dividend Policy under Asymmetric Information 1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES 1984Two Agency-Cost Explanations of Dividends

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