Pamela P. Peterson

Direct evidence on the marginal rate of taxation on dividend income

Abstract Miller and Scholes (1978) hypothesize that the marginal tax rate on dividend income may be less than the marginal rate of tax on capital gains. Their hypothesis is dependent upon individuals utilizing existing provisions of the Code which serve to reduce the taxation of dividends. In this study, estimates of the marginal and effective rates of tax on dividend income for the year 1979 are presented using the Statistics of Income sample of returns. The average marginal rate of tax on dividend income is estimated to be 40%, while the average effective rate of tax is estimated to be 30%.

A Reexamination of the Empirical Relationship between Investment and Financing Decisions

Several studies (see [7], [15], [9], and [16]) have attempted to ascertain the empirical relationships that exist between the financing and investment decisions of firms. The primary impetus for these efforts was provided by Modigliani and Miller (MM) [20], [21] when they demonstrated that under the assumption of perfect capital markets, the optimal investment decisions of a firm are separable from its financing decisions. In the presence of market imperfections, interdependencies between these decisions that violate the basic MM propositions may exist. Therefore, the studies referred to above have essentially focused upon determining whether market imperfections have been of sufficient magnitude to lead to joint determination of investment and financing decisions. Though the original MM propositions were introduced more than two decades ago, the nature of the empirical relationship between investment and financing decisions remains a controversial issue. The fact that this matter is still unresolved is not attributable to a lack of attention, for the original propositions have been examined in the presence of taxes, bankruptcy costs, and agency costs with no clear consensus emerging.

Self-tender offers: The effects of free cash flow, cash flow signalling, and the measurement of Tobin's q

Abstract In their analysis of self-tender offers. Howe et al. (1992) reject the free cash flow hypothesis. We expand their analysis in two ways, exploring implications of using long-run measures of Tobins q as opposed to current qs and incorporating cash flow signalling. We find that acceptance or rejection of the free cash flow hypothesis is sensitive to the measure of q, raising concern over the reliability of results based on different q measures. Thus, the free cash flow hypothesis should not yet be dismissed. We also find strong evidence supporting cash flow signalling.

The medium of exchange in mergers and acquisitions

Abstract This study examines the role of the medium of exchange in the explanation of returns and the distribution of wealth between parties in mergers and acquisitions. The wealth changes of shareholders of acquiring and acquired firms is examined for 272 mergers consummated between 1980 and 1986. We find that the distribution of the wealth gains does not differ among mergers using different mediums of exchange and that the relative size of the two parties is the primary determinant of the distribution of wealth changes.

Variance increases following large stock distributions: the role of changing bid-ask spreads and true variances

Abstract In this study we examine two factors affecting variance increases following stock distributions: changing bid-ask spreads and the true variability of the underlying value of the firm. Employing data from the CRSP NASDAQ and NMS files, we find a relatively minor role for changing spreads. Increases in true variances are the major component of variance increases with changes in return autocorrelations playing an important role.