TY - JOUR AU - Desai,Mihir A. AU - Foley,C. Fritz AU - Hines,James R.,Jr. TI - Dividend Policy inside the Firm JF - National Bureau of Economic Research Working Paper Series VL - No. 8698 PY - 2002 Y2 - January 2002 UR - http://www.nber.org/papers/w8698 L1 - http://www.nber.org/papers/w8698.pdf N1 - Author contact info: Mihir A. Desai Graduate School of Business Administration Harvard University Soldiers Field Boston, MA 02163 Tel: 617/495-6693 Fax: 617/496-6592 E-Mail: mdesai@hbs.edu C. Fritz Foley Graduate School of Business Administration Harvard University Soldiers Field Boston, MA 02163 Tel: 617/495-6375 Fax: 617/496-8443 E-Mail: ffoley@hbs.edu James R. Hines Department of Economics University of Michigan 343 Lorch Hall 611 Tappan Street Ann Arbor, MI 48109-1220 Tel: 734/764-2320 Fax: 734/764-2769 E-Mail: jrhines@umich.edu AB - This paper analyzes dividend remittances by a large panel of foreign affiliates of U.S. multinational firms. The dividend policies of foreign affiliates, which convey no signals to public capital markets, nevertheless resemble those used by publicly held companies in paying dividends to diffuse common shareholders. Robustness checks verify that dividend policies of foreign affiliates are little affected by the dividend policies of their parent companies or parent company exposure to public capital markets. Systematic differences in the payout behavior of affiliates that differ in organizational form, and those that face differing tax costs of paying dividends, reveal the importance of tax factors; nevertheless, dividend policies are not solely determined by tax considerations. The absence of capital market considerations and the incompleteness of tax explanations together suggest that dividend policies are largely driven by the need to control managers of foreign affiliates. Parent firms are more willing to incur tax penalties by simultaneously investing funds while receiving dividends when their foreign affiliates are partially owned, located far from the United States, or in jurisdictions in which property rights are weak, all of which are implied by control theories of dividends. ER -