DIVIDENDS AND PROFITS - SAME UNSUBTLE FOREIGN INFLUENCES

American corporations earn a significant share of their profits from f oreign sources, out of which they appear to pay dividends at rates tha t are three times higher than their payout rates from domestic profits . Why firms do so is unclear, although this behavior is consistent wit h the use of dividends to signal profitability. This payout behavior i mplies that a significant part of the U.S. tax revenue generated by th e foreign profits of U.S. corporations arises through the taxation of dividends received by individuals, and that the cost of capital may be higher for foreign than for domestic operations.