Abstract
This paper analyzes the Gordon Growth Model and its evolution in various studies. A modification of the Gordon Growth Model using corporate income tax and personal income tax is developed. Two equations are presented, one of which is for determining the share price with taxes and the other for determining for the value of growth rate.
This is a preview of subscription content, log in via an institution to check access.
Notes
- 1.
Technically, it is the personal income tax rate, but we use “dividend tax rate” to highlight the fact that we mean dividend income here. We do not consider the case when the investor is a legal entity.
References
Barsky RB, De Long JB (1993) Why does the stock market fluctuate? Q J Econ CVIII:291–311. https://doi.org/10.2307/2118333
Belomyttseva O, Grinkevich L (2016) A note on the Gordon growth model with earnings per share. In: Proceedings of the 3d international scientific conference on information technologies in science, management, social sphere and medicine, Tomsk, May 2016. https://doi.org/10.2991/itsmssm-16.2016.34
Damodaran A (2012) Investment valuation: tools and techniques for determining the value of any asset, 2nd edn. Wiley, Hoboken
Farrell JL (1985) The dividend discount model: a primer. Financ Anal J 41(6):16–19+22–25. https://doi.org/10.2469/faj.v41.n6.16
Foerster SR, Sapp SG (2005) The dividend discount model in the long-run: a clinical study. J Appl Financ 15(2):1–21
Fuller RJ, Hsia C (1984) A simplified common stock valuation model. Financ Anal J 40:49–56
Gordon M (1962) The investment, financing, and valuation of the corporation. Irwin, Homewood
Gorman L (2002) An internally consistent approach to common stock valuation. Int Bus Econ Res J 1(3):69–78
Heinrichs N, Hess D, Homburg C et al (2013) Extended dividend, cash flow and residual income valuation models - accounting for deviations from ideal conditions. Contemp Account Res 30(1):42–79. https://doi.org/10.1111/j.1911-3846.2011.01148.x
Hurley WJ, Johnson LD (1994) A realistic dividend valuation model. Financ Anal J 50(4):50–54. https://doi.org/10.2469/faj.v50.n4.50
Hurley WJ, Johnson LD (1997) Stochastic two-phase dividend discount models. J Portf Manag 23(4):91–98. https://doi.org/10.3905/jpm.1997.409614
Hurley WJ, Fabozzi F (1998) Dividend discount models. In: Fabozzi FJ (ed) Selected topics in equity portfolio management. New Hope, Pennsylvania
Hurley WJ, Johnson LD (1998) Generalized Markov dividend discount models. J Portf Manag 25(1):27–31. https://doi.org/10.3905/jpm.1998.409658
Hurley WJ (2013) Calculating first moments and confidence intervals for generalized stochastic dividend discount models. J Math Financ 3:275–279. https://doi.org/10.4236/jmf.2013.32027
Irons R (2014) Enhancing the dividend discount model to account for accelerated share price growth. J Account Financ 14(4):153–159
Lazzati N, Menichini AA (2015) A dynamic approach to the dividend discount model. Rev Pac Basin Finan Mark Pol 18:1–36
Litzenberger RH, Ramaswamy K (1979) The effect of personal taxes and dividends on capital asset prices: theory and empirical evidence. J Financ Econ 7:163–196. https://doi.org/10.1016/0304-405X(79)90012-6
Pages H (1999) A note on the Gordon Growth Model with nonstationary dividend growth. BIS Work Pap No 75. Available via SSRN. http://papers.ssrn.com. Accessed 26 Feb 2017
Perevozchikov AG (2009) On the interrelation of Gordon Model and Fisher Equation. Financ Anal Sci Exp 3:65–67
Schurman G (2009) Schurman XGGM model – extended Gordon growth model in continuous time. Available via Applied Business Economics. http://www.appliedbusinesseconomics.com/files/gvsxggm02.pdf. Accessed 26 Feb 2017
Sorensen EH, Williamson DA (1985) Some evidence on the value of the dividend discount model. Financ Anal J 41:60–69
Yao YL (1997) A Trinomial Dividend Valuation Model. J Portf Manag 23(4):99–103. https://doi.org/10.3905/jpm.1997.409618
Acknowledgments
This study has been conducted with the financial support of the Global Competitiveness Enhancement Program 2013–2020 of Tomsk State University.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2018 Springer International Publishing AG
About this paper
Cite this paper
Belomyttseva, O., Grinkevich, L., Grinkevich, A. (2018). A Note on the Gordon Growth Model with Taxes. In: Procházka, D. (eds) The Impact of Globalization on International Finance and Accounting. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-68762-9_17
Download citation
DOI: https://doi.org/10.1007/978-3-319-68762-9_17
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-68761-2
Online ISBN: 978-3-319-68762-9
eBook Packages: Economics and FinanceEconomics and Finance (R0)