Optimal dividend policy, debt policy and the level of investment within a multi-period DCF framework

Article history: Received 7 January 2010 Accepted 13 August 2010 Available online 21 August 2010 This paper simultaneously analyses optimal dividend, debt and investment policy within a conventional multi-period DCF framework, and takes account of differential personal taxation over both investors and types of income, the effect of dividends and interest on the level of share issues and hence share issue costs, and the effect of dividends and interest on the level of internally-financed investment. Application of the model to three distinct tax regimes reveals that the value benefit from debt is small at best whilst the value benefit from dividends is substantial even in a regime without dividend imputation. © 2010 Elsevier B.V. All rights reserved. JEL classification: G31 G32 G35