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Taxes, Financing Decisions, and Firm Value

Eugene F. Fama and Kenneth R. French
The Journal of Finance
Vol. 53, No. 3 (Jun., 1998), pp. 819-843
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/117379
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Taxes, Financing Decisions, and Firm Value
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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.

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