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From: wmartin@brl-tgr.ARPA (Will Martin )
Newsgroups: net.invest
Subject: Re: Corporate borrowing to finance dividends
Message-ID: <11274@brl-tgr.ARPA>
Date: Wed, 12-Jun-85 16:11:26 EDT
Article-I.D.: brl-tgr.11274
Posted: Wed Jun 12 16:11:26 1985
Date-Received: Thu, 20-Jun-85 07:38:57 EDT
References: <2425@decwrl.UUCP> <7718@ucbvax.ARPA> <5904@ucla-cs.ARPA> <8021@ucbvax.ARPA>
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> Assume a corporation holds onto its earnings rather than paying dividends.
> This means the value of its stock will increase to reflect this. Ideally,
> it would increase by the same amount as the earnings per share, but maybe
> not.
> {Info about tax savings here from capital gains instead of income}
> 					Paul Bradley

Perhaps the reason why this isn't done is because the market isn't logical.
The price/value of a stock maybe SHOULD go up by the same amount as the
accumulated earnings held per share, but nothing will MAKE it do so.

After all, takeover artists continually look for "undervalued" stocks --
where the stock price is less than the assets-per-share value; if the
price really did reflect the accumulations and earnings, there would NEVER
be any such "undervalued" stocks! The fact that they are there proves that
the market price is driven more by mystery and supposition than by
solid fact. 

Also, of course, many people buy stocks for the purpose of collecting
the income while holding the principal inviolate, plus what they might
gain from the appreciation of the stock value. If the dividends were not
distributed, these people wouldn't want to buy those stocks. Thus there
is less of a demand for them, so their price would fall somewhat, if
the old "supply and demand" principle means anything... This would
directly counteract the supposed RISE in price due to holding earnings.

Besides, held earnings will probably go to top management as bonuses
and perks. (:-)

Will