The effects of dividend yield and dividend policy on common stock prices and returns

This paper suggests that it is not possible to demonstrate, using the best available empirical methods, that the expected returns on high yield common stocks differ from the expected returns on low yield common stocks either before or after taxes. A taxable investor who concentrates his portfolio in low yield securities cannot tell from the data whether he is increasing or decreasing his expected after-tax return by so doing. A tax exempt investor who concentrates his portfolio in high yield securities cannot tell from the data whether he is increasing or decreasing his expected return. We argue that the best method for testing the effects of dividend policy on stock prices is to test the effects of dividend yield on stock returns. Thus the fact that we cannot tell, using the best available methods, what effects dividend yield has on stock returns implies that we cannot tell what effect, if any, a change in dividend policy will have on a corporation's stock price.     

Information Sharing,Price Negotiation and Management Buy-outs of Private Family-owned Firms

Perspectives relating to agency theory, information asymmetries and game theory were utilized to explore two outcomes associated with the management buy-out (MBO) or management buy-in (MBI) of former private firms: whether information was shared equally between vendors (i.e., family firm owners) and purchasers (i.e., MBO/I management teams) and whether a mutually agreed price was achieved. With reference to the themes of company ownership structure, governance structure and company objectives several hypotheses were derived. Survey evidence was gathered from the managers of 114 former private family-owned firms located across Europe that recently reported an MBO/I. Multiple logistic regression analysis detected that respondents in founded (first generation) family firms and those reporting a high focus on the strategic importance of the market value increment were more likely to report that ‘information was shared equally between vendors and purchasers’. Respondents reporting no suitable family successor had been identified, a high focus on the strategic importance of the market value increment, and the involvement of venture capitalists in succession planning were more likely to report that a mutually agreed sale price had been achieved. Implications for practitioners and researchers are discussed.      

Convex Relationships in Ecosystems Containing Mixtures of Trees and Grass

The relationship between grass production andthe quantity of trees in mixed tree-grassecosystems (savannas) is convex for all or mostof its range. In other words, the grassproduction declines more steeply per unitincrease in tree quantity at low tree coverthan at high tree cover. Since much of theeconomic value in savannas is ultimatelyderived from grass, and the main mechanismcontrolling the tree-grass balance is dependenton the production of grassy fuel for fires,this non-linearity has the effect of creatingtwo savanna configurations. One has a low treedensity and supports a viable grazingenterprise, while the other has dense treecover and a frequently non-viable grazingenterprise. The non-linearity is suggested hereto have two main sources: the geometry of thespatial interaction between tree root systemand grasses, and the effect of differingphenology (the time course of leaf areaexposure) on the acquisition of water andnutrients. The existence of the non-linearityreduces the resilience of thegenerally-preferred “open” configuration, andincreases the resilience of the less-desirable“closed” configuration.     

Dividends and taxes

We present sufficient conditions for taxable investors to be indifferent to dividends despite tax differentials in favor of capital gains (Strong Invariance Proposition). The conditions include two ‘seemingly unrelated’ provisions of the Internal Revenue Code: (1) the limitation of interest deductions to investment income received and (2) the tax-free accumulation of wealth at the before-tax interest rate on investments in life insurance. Although we use insurance for simplicity in the proof, many tax-equivalent investment vehicles now exist, notably pension funds. Our analysis suggests that the personal income tax is approaching a consumption tax with further drift likely.     

Internationalization of Small Family Firms: The Influence of Family from a Socioemotional Wealth Perspective

We explore the factors influencing the internationalization of small family firms. Based on interviews with six family firms in Singapore, we highlight the importance of (1) family harmony, (2) trust in external relationships, (3) social and business networks, and (4) organizational resources and capabilities in the internationalization process. We show how the socioemotional wealth factors of trust and harmony affect networking and resources, which in turn affect internationalization. We find that initial internationalization through exports is enabled through trust in family networks, but the typical family characteristics of a desire to maintain family harmony and distrust of outsiders have a negative impact on network creation and resource development, which constrains the extent to which the firm internationalizes beyond exporting. In order to move from the first stage (exports/similar markets) to the second stage (joint ventures/different markets) of internationalization, less emphasis on trust and family harmony accompanied by more emphasis on building external networks and resources may be necessary. We propose a new model of internationalization of family firms based on our findings. © 2015 Wiley Periodicals, Inc.     

Tax planning, regulatory capital planning, and financial reporting strategy for commercial banks

We test whether banks' investment and financing policies canbe explained by tax status. We document changes in bank holdingsof municipal bonds in response to changes in tax rules relatingto deductibility of interest expense. We also document an associationbetween banks' marginal tax rates and their investment and financingdecisions, which is consistent with the existence of tax clienteles.However, banks do not sort themselves perfectly into investmentand financing clienteles because of adjustment costs. We positspecific types of transaction-cost impediments to tax planning,and document that banks apparently trade off these costs againsttax-planning benefits.