Dividends often impose taxes on investors. However, as certain prior financial models indicate, they also can produce a tax gain from leverage. Hence the composite marginal dividend tax rate can be specified as the nominal rate minus the offsetting tax gain from leverage. Although this principle...

We expand the traditional specification of the tax gain from leverage by accounting for the choice between issuing debt and utilizing internal retained earnings equity. Standard analyses focus solely on the choice between debt and external equity. This results in the traditional tax gain from...