How dividends influence valuation : do investors appreciate cash dividends?
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- Master Thesis 
This paper explores the relationship between cash dividends and value for American firms. It follows Fama and French “Taxes, Financing Decisions and Firm Value” (1998). Fama and French found that dividends convey information about profitability that are missed even when they control for variables such as earnings, investments and research and development (R&D), in the time-period 1965-1992. We extend the data-set to see if the effect of dividends is still relevant for the period 1965-2008. Fama and French ran regressions on all firms found in the Compustat database that had the relevant variables, and so do we. In addition, we run a set of regressions only on firms listed on NYSE, NASDAQ and AMEX to filter effects of low liquidity stocks. Our findings are in line with Fama and French and we are both able to confirm their results for the time-period 1965-1992 and 1965-2008. The slopes of the dividend-coefficients are just as strong when we run regressions on NYSE, NASDAQ and AMEX only. We also confirm Lintner’s findings on dividend-smoothing and discover tax-effects around large changes in the tax-code in boom-periods.