This paper assumes that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains. It is shown that under these conditions, such dividends function as a signal of expected cash flows. By structuring the model so thatfinite-lived investors turn over continuing projects to succeeding generations of investors, we derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons. This paper is a revised version of a chapter of my Ph.D. dissertation at the Sloan School of Management, Massachusetts Institute of Technology (1977). I wish to thank Professors Carliss

No abstract

No abstract

No abstract