Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-08T09:36:05.606Z Has data issue: false hasContentIssue false
  • English
  • Français

Earnings Distribution and the Valuation of Shares: Some Recent Evidence**

Published online by Cambridge University Press:  19 October 2009

James J. Diamond
Get access Rights & Permissions [Opens in a new window]

Extract

Questions have been raised in recent years concerning the interpretation of previous studies purporting to show that distributed earnings have had a consistently greater impact on equity prices than have retained earnings. Miller and Modigliani have convincingly argued that if capital markets are perfect and rational behavior of market participants is assumed, the price-earnings ratio of the shares of a firm with a given investment policy should be invariant to alternative earnings-payout ratios. They also point out, however, that with the present tax subsidy on capital gains and the existence of substantial brokerage fees and flotation costs, dividend policy might be expected to have an effect on share prices, even though the amount and direction of this effect is an empirical matter and not determinable a priori.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 2 , Issue 1 , March 1967 , pp. 15 - 30
Copyright
Copyright © School of Business Administration, University of Washington 1967

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1.Benishay, Haskel, “Variability in Earnings-Price Ratios of Corporate Equities,” American Economic Review (March 1961), pp. 81–94.Google Scholar
2.Durand, David, “The Cost of Capital, Corporation Finance, and the Theory of Investment: Comment,” American Economic Review (September 1959), pp. 639–654.Google Scholar
3.Fisher, G. R., “Some Factors Influencing Share Prices,” Economic Journal (March 1961), pp. 121–141.CrossRefGoogle Scholar
4.Friend, Irwin, and Parker, Sanford, “A New Slant on the Stock Market,” Fortune (September 1956).Google Scholar
5.Friend, Irwin, and Puckett, Marshall, “Dividends and Stock Prices,” American Economic Review (September 1964), pp. 656–682.Google Scholar
6.Gordon, Myron J., “Dividends, Earnings, and Stock Prices,” Review of Economic Statistics (May 1959), pp. 99–105.CrossRefGoogle Scholar
7.Graham, Benjamin, Dodd, David, and Cottle, Sidney, Security Analysis, 4th ed., (New York: McGraw-Hill, 1962).Google Scholar
8.Harkavy, Oscar, “The Relation Between Retained Earnings and Common Stock Prices for Large, Listed Corporations,” Journal of Finance (September 1953), pp. 283–297.CrossRefGoogle Scholar
9.Johnson, Lyle, Shapiro, Eli, and O'Meara, Joseph Jr., “Valuation of Closely-held Stock for Federal Tax Purposes: Approach to an Objective Method,” University of Pennsylvania Law Review (November 1951), pp. 166–195.CrossRefGoogle Scholar
10.Lintner, John, “Dividends, Earnings, Leverage, Stock Prices, and the Supply of Capital to Corporations,” Review of Economic Statistics (August 1962), pp. 243–269.CrossRefGoogle Scholar
11.Miller, M. H., and Modigliani, Franco, “Dividend Policy, Growth, and the Valuation of Shares,” Journal of Business (October 1961), pp. 411–433.CrossRefGoogle Scholar
12.Miller, M. H., and Modigliani, Franco, “Some Estimates of the Cost of Capital to the Electric Utility Industry, 1954–1957,” American Economic Review (June 1966), pp. 333–391.Google Scholar
13.Modigliani, Franco, and Miller, M. H., “The Cost of Capital, Corporation Finance, and the Theory of Investment,” American Economic Review (June 1958), pp. 261–297.Google Scholar
14.Modigliani, Franco, and Miller, M. H., “The Cost of Capital, Corporation Finance, and the Theory of Investment: Reply,” American Economic Review (September 1959), pp. 655–659.Google Scholar
15.Pastoriza, Hugh, “Valuing Utility Earnings Distributed and Retained,” Analysts Journal (July 1945), pp. 11–15.Google Scholar
16.Walter, James E., “A Discriminant Function for Earnings-Price Ratios of Large Industrial Corporations,” Review of Economic Statistics (February 1959), pp. 44–52.CrossRefGoogle Scholar
17.Young, Harold H., “Factors Influencing Utility Price Earnings Ratios,” Analysts Journal (January 1945), pp. 45–48.CrossRefGoogle Scholar