The Corporation
[1611] A body corporate legally authorized to act as a single individual, an artificial person created by royal charter, prescription, or act of legislature, and having authority to preserve certain rights in perpetual succession. (OED) Compare publicani of ancient Rome, essentially corporations (though the most prominent were private collecting agencies for taxes)
Limited Liability
Even publicani had some form of limited liability sometimes New York State legislature made limited liability standard for all corporations, 1811 Standard copied by other states, finally California, 1931.
Payment of Dividends
Purely discretionary Young firms typically pay none NASDAQ dividend yield virtually zero Corporate culture influences dividends. Microsoft Liquidity constraints on dividends
Dividend Signalling
By raising dividends, firm shows it can court bankruptcy. Battacharya, Hakansson, Ross Problem: alternative signalling methods are cheaper tax-wise
Share Repurchase
Once rare, now S&P 500 firms repurchase approx. 2% of shares per year. They issue about 1% of shares per year in employee option exercise, so net repurchase is about 1% per year. Repurchase now almost as high as dividends paid, but firms still pay dividends. A puzzle.
Perception of great growth opportunities with new technology First-mover advantage prized Dividends, Earnings are for losers Problem in valuing firms