We solve an agent’s optimization problem of meeting demands for cash over time with cash deposited in bank or invested in stock. The stock pays dividends and uncertain capital gains, and a commission is incurred in buying and selling of stock. We use a stochastic maximum principle to obtain explicitly the optimal transaction policy.

In this paper, we model cash flow and consumption growth rates as a vectorautoregression (VAR), from which we measure the response of cash flow growth to consumption shocks. As the appropriate cash flow proxy is not unambiguous, nor likely to be measured without error, we consider three alternatives for portfolio cash flows: cash dividends, dividends plus repurchases and corporate earnings. We ...

We propose a generalized framework for the modeling of tradeable securities with dividends which are not necessarily cash dividends at fixed times or continuously paid dividends. In our setup the dividend processes are only required to be semi-martingales. We give a definition of self-financing replication which incorporates dividend processes, and we show how this allows us to translate standa...

The paper analyses the determinants of dividend payments and tests the hypothesis that companies pay dividends at the expense of investing in research and development (R&D). The evidence suggests that four fundamental factors – size, growth, profitability and risk – determine the decision to pay dividends but also to invest in R&D. Consistent with previous evidence, the average R&D intensity of...

We derive a general formula for the futures price process without the restriction that the assets used in the future margin account are continuous and of finite variation. To do so, we model tradeable securities with dividends which are not necessarily cash dividends at fixed times or continuously paid dividends. A future contract can then be modelled as an asset which pays dividends but has ze...

The well-known tendency of investors to favor cash dividends emerges quite naturally in two new theories of choice behavior [the theory of self-control due to Thaler and Shefrin (1981) and the version of prospect theory set out by Kahneman and Tversky (1979)]. Although our treatment is novel when viewed from the perspective of standard financial theory, it provides explanations for a phenomenon...

The paper investigates market reaction to announcements of stock repurchases and dividends and determinants of choice between the two payout methods. The analysis uses data on Polish firms with the sample period encompassing a significant tax regulation change. The average announcement period abnormal returns are relatively high and exceed 6% for stock repurchases and 2% for dividend initiation...

This study shows the payment of cash dividends is not necessary for successful corporatefinancial management in mature firms. A mature company in a mature industry, theCrown Cork and Seal Company did not pay any common dividends over a 33-yearperiod. Instead, the firm used stock repurchases flexibly to manage the challenges ofdeclining industry growth potential. Crown’s share re...

This paper investigates the interaction between product market competition and managers’ decision to distribute cash to shareholders. Using a large sample of manufacturing firms, we find that firms in more competitive industries pay more dividends than firms in less competitive markets. Further, consistent with agency theory, we find that the effect of product market competition on corporate pa...

Using Japanese firm data, this paper examines the relationship between firm value and financing decision factors within a free cash flow (FCF) framework. The findings are broadly consistent with the positive tax benefits hypothesis. We find that in firms leverage is positively related to firm value and dividends are negatively related to firm value during the sample period, 1985 to 1996. The re...