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Book part
Publication date: 24 October 2019

Tarek Ibrahim Eldomiaty, Panagiotis Andrikopoulos and Mina K. Bishara

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial…

Abstract

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.

Design/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. The data cover quarterly periods from 1989 to 2014. The statistical tests include linearity, fixed, and random effects and normality. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. Standard and proposed proxies of information asymmetry are discussed.

Findings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. A similar picture emerges in the cases of firm size and industry effects. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry).

Originality/Value: This chapter contributes to the related literature in two ways. First, this chapter offers updated empirical evidence on the way that financing, investment, and dividends decisions are made under conditions of favorable and adverse selection. Other related studies deal with each decision separately. Second, the study offers new proxies for measuring information asymmetry in order to reach robust estimates of the effects of financial decisions on growth of the firm under conditions of agency problems.

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Article
Publication date: 1 February 1993

Richard Dobbins

Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that…

Abstract

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Details

Management Decision, vol. 31 no. 2
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 25 February 2014

Anastacia C. Arko, Joshua Abor, Charles K.D. Adjasi and Mohammed Amidu

– The purpose of this paper is to examine the determinants of the dividend decisions of firms in Sub-Saharan Africa (SSA).

Abstract

Purpose

The purpose of this paper is to examine the determinants of the dividend decisions of firms in Sub-Saharan Africa (SSA).

Design/methodology/approach

The paper applies a two-step estimation procedure using firm-level panel data for firms in selected SSA countries during the period from 1997 to 2007. In the first step the paper employs a probit model to estimate the parameters of the determinants of the decision to pay or not to pay dividends. In the second step the paper estimates the parameters of the dividend payout and dividend per share models by applying the generalised least squares techniques.

Findings

The results provide consistent evidence that dividend decision and its payments are influenced by firm profitability level, investment opportunity sets, taxation, leverage, institutional shareholding and risk. The results affirm the signalling, agency cost and free-cash flow theories of dividend policy.

Originality/value

The main value of this paper is identification of factors that influence dividend decisions of firms in SSA.

Details

Journal of Accounting in Emerging Economies, vol. 4 no. 1
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 15 July 2020

Akram Ramadan Budagaga

This paper aims to investigate bank-specific determinants affecting the dividend policy of commercial banks listed in the Middle East and North Africa (MENA) region countries.

Abstract

Purpose

This paper aims to investigate bank-specific determinants affecting the dividend policy of commercial banks listed in the Middle East and North Africa (MENA) region countries.

Design/methodology/approach

The study uses pooled and panel tobit and logit regression analyses based on 16-year unbalanced data with 1,593 firm-year observations collecting from 117 commercial banks listed in 11 MENA countries.

Findings

The results indicated that the main bank-specific factors affecting dividend payment decisions are bank size, profitability, capital adequacy, credit risk and bank age in the context of the MENA emerging markets. In addition, the analysis showed that the yearly dummy for the global financial crisis (2008–2009) has a significant negative effect, while the yearly dummy for the Arabic spring crisis (2010–2011) has no significant effect on the dividend payment decision of banks listed in the MENA region. Furthermore, the growth opportunity is not one of the key factors affecting dividend policies by banks in MENA emerging markets. Considering this information, it is reasonable to conclude that MENA region banks’ dividend decisions follow investment decisions. In other words, the dividend decisions and investment decisions are independent of each other. The findings support theories (hypotheses) of dividends such as residual, signalling, regulatory pressures, transaction cost and lifecycle.

Research limitations/implications

This study is restricted to a sample of one type of financial firm, conventional commercial banks listed in the MENA markets because of the problem of missing data and limited information on other financial firms for the same period, particularly Islamic banks. Moreover, the focus of this study was on factors that are considered bank fundamentals. However, ownership variables were not included in the study because of unavailability.

Practical implications

The results of this study have several important implications for banks’ dividend policymakers, regulators, analysts and investors. Dividend policymakers in MENA emerging markets seem to use residual dividend policy, in which they distribute dividends according to what is left over after all acceptable investment opportunities have been undertaken. These inconsistent, unstable dividend policy trends make it difficult for investors to predict future dividend decisions. Further, this practise may convey information to shareholders about a lack of positive future investment opportunities. This may negatively affect the share value of banks. Acquiring a broad understanding of the dividend behaviour of MENA banks enables regulators to take more effective regulatory actions to protect shareholders and depositors. Finally, the results of this study can help analysts and investors build their dividends predictions and investment strategies.

Originality/value

The banking sector plays a disproportionately large role in the development of emerging economies. Therefore, this study is one of the first to examine a large cross-country sample of MENA banks (117) for an extensive period (2000–2015). The study includes both the Global financial crisis and Arab uprising periods, including after the liberalization and recent economic reforms and structural changes in financial sectors across MENA countries.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

Content available
Article
Publication date: 6 April 2020

Tatiana Aquino Almeida, Cinthya Rachel Firmino de Morais and Antonio Carlos Coelho

Considering that the heterogeneity in the composition of deliberation and management bodies can promote a differentiated impact on earnings distribution policies of…

Abstract

Purpose

Considering that the heterogeneity in the composition of deliberation and management bodies can promote a differentiated impact on earnings distribution policies of companies, the purpose of this paper is to examine the marginal influence of female participation on the board of directors and executive board regarding decisions associated with dividend policy in companies operating in Brazil.

Design/methodology/approach

The sample is composed of non-financial companies listed on the B3 Stock Exchange between 2010 and 2015, which encompasses 261 companies (1,084 observations per year). The tests aim at explaining the probability of earnings distribution and the payout level of companies through variables that measure the female presence – considering that the explanatory economic attributes of decisions over dividends are kept under control. The econometric analysis was carried out through the descriptive analysis of the variables and LOGIT and TOBIT tests of inference estimated with fixed effects and meeting all econometric requirements.

Findings

The proportion of women in both deliberative and executive bodies affects marginally the dividend policy of Brazilian companies. The female presence in management bodies contributes to a higher probability of earnings distribution and increase in the payout level; such tendency is moderated when women are in the board of directors; so, we do not reject the hypothesis of female influence on dividend policy decisions in Brazil.

Originality/value

One can find such investigations in foreign environments, but such tests had not been accomplished in Brazil so far. We discuss, therefore, in an unprecedented way, the heterogeneity in deliberative (governance) and executive (management) bodies and its outcomes in strategic decisions made in Brazilian companies, focusing on the female insertion and on fundamental decisions that are related to the relationship among stakeholders, which is the dividend policy per se.

Details

Revista de Gestão, vol. 27 no. 2
Type: Research Article
ISSN: 1809-2276

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Article
Publication date: 7 April 2015

Subba Reddy Yarram

The purpose of this paper is to examine the influence of corporate governance on the dividend payout decisions of Australian firms by considering two related objectives…

Abstract

Purpose

The purpose of this paper is to examine the influence of corporate governance on the dividend payout decisions of Australian firms by considering two related objectives. First, it considers the role of corporate governance ratings (CGRs) on the decision to pay or not to pay dividends. Second, it considers the influence of CGRs on the average dividend payout level of Australian firms.

Design/methodology/approach

The sample consists of 413 non-financial firms included in the All Ordinaries Index for the period 2004-2009. A logit model is employed to analyse the decision to pay or omit dividends. Similarly, tobit method is employed to analyse the factors influencing the dividend payout level of Australian firms. To control for unobserved heterogeneity, this study employs random effects panel logit and panel tobit models.

Findings

This study finds that CGRs have a significant positive influence on the decision to pay dividends and on the average dividend payout level of Australian firms. Similarly, the present study finds support for signalling hypothesis as profitability has a significant positive influence and a loss dummy has a significant negative influence on the dividend payout decisions of Australian firms. The study also finds support for the life cycle hypothesis as growth opportunities have a significant negative impact on the average dividend payout level of Australian firms. This study finds no conclusive evidence of the existence of dividend tax clientele in Australia.

Research limitations/implications

Dividends provide a complementary governance role consistent with the “outcomes model” of the agency cost theory as proposed by La Port et al. (2000).

Practical implications

The findings have implications for corporate governance policies. Principle-based governance mechanisms work as well as the rule-based governance mechanisms in an environment characterized by high levels of investor protection and well-developed stock markets. Companies that are well governed may limit the opportunities for managers to expropriate shareholders and thus governance may reduce the contracting costs associated with compensation policies.

Originality/value

This is the first study that examines the influence of governance on dividend policy using the CGRs developed by the WHK Horwath/University of Newcastle. Findings are robust and account for unobserved heterogeneity as random effects panel models are employed.

Details

International Journal of Managerial Finance, vol. 11 no. 2
Type: Research Article
ISSN: 1743-9132

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Book part
Publication date: 16 January 2014

Sascha Füllbrunn and Ernan Haruvy

We investigate the implications of the misalignment between manager and shareholder interests and the effects of initial ownership stakes and reinvestment of unpaid…

Abstract

Purpose

We investigate the implications of the misalignment between manager and shareholder interests and the effects of initial ownership stakes and reinvestment of unpaid dividends on managerial self-dealing.

Methodology

We collect and analyze data from controlled laboratory experiments with an experimental setting which captures the role of ownership in managerial considerations.

Findings

We see the emergence of both investor-aligned outcomes and managerial self-dealing outcomes. We find that increasing managers’ initial endowment of shares makes it harder for managers to coordinate on an outcome and lowers return on investment. Moreover, allowing managers to reinvest unpaid dividends results in a transfer of wealth to management.

Research limitations

The results and the conclusions are drawn upon data from the particular setting we investigate. Generalizing them beyond the specific setting should be done with caution.

Practical implications

Higher managerial ownership stake means that managers have a greater incentive to reward shareholders, but we find that it may also imply a more difficult coordination problem between managers – sometimes to the detriment of shareholders.

Originality

This study is the first to consider the direct relationship between managers’ portfolios and voting decisions regarding dividends and investment levels.

Details

Experiments in Financial Economics
Type: Book
ISBN: 978-1-78350-141-0

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Article
Publication date: 6 July 2015

Apedzan Emmanuel Kighir, Normah Haji Omar and Norhayati Mohamed

The purpose of this paper is to contribute to the debate and find out the impact of cash flow on changes in dividend payout decisions among non-financial firms quoted at…

Abstract

Purpose

The purpose of this paper is to contribute to the debate and find out the impact of cash flow on changes in dividend payout decisions among non-financial firms quoted at Bursa Malaysia as compared to earnings. There has been renewed debate in recent finance and accounting literature concerning the key determinants of changes in dividends payout policy decisions in some jurisdictions. The conclusion in some is that firms base their dividend decisions on cash flows rather than published earnings.

Design/methodology/approach

The research made use of panel data from 1999 to 2012 at Bursa Malaysia, using generalized method of moments as the main method of analysis.

Findings

The research finds that Malaysia non-financial firms consider current earnings more important than current cash flow while making dividends payout decisions, and prior year cash flows are considered more important in dividends decisions than prior year earnings. We also found support for Jensen (1986) in Malaysia on agency theory, that managers of firms pay dividends from free cash flow to reduce agency conflicts.

Practical implications

The research concludes that Malaysian non-financial firms use current earnings and less of current cash flow in making changes in dividends policy. The policy implication is that current earnings are dividends smoothing agents, and the more they are considered in dividends payout decisions, the less of dividends smoothing.

Social implications

If dividends smoothing is encouraged, it could lead to dividends-based earnings management.

Originality/value

The research is our novel contribution of assisting investors and government in making informed decisions regarding dividends policy in Malaysia.

Details

Journal of Financial Reporting and Accounting, vol. 13 no. 1
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 1 March 2013

Nopphon Tangjitprom

The purpose of this paper is to examine whether the catering incentives of dividends can influence firms' dividend payment decisions in Thailand.

Abstract

Purpose

The purpose of this paper is to examine whether the catering incentives of dividends can influence firms' dividend payment decisions in Thailand.

Design/methodology/approach

The sample includes all listed stocks in the Stock Exchange of Thailand during the years 1992‐2009, excluding the firms from financial industries and firms with incomplete information. The catering incentives are measured by dividend premium. The firms' dividend payment decisions are measured by propensity to pay dividends and decision to change dividends.

Findings

The findings yield qualitatively consistent with the previous research. After controlling for the effect of the Asian Crisis during 1997‐1999, the result shows that the firm's decision to pay dividend could be affected by the catering incentives. Furthermore, dividend premium will reduce the probability that firms will decide to cut dividend payment from previous years.

Research limitations/implications

The result is limited to the availability of historical data. The Stock Exchange in Thailand has been established for only 35 years. With the lack of availability and completeness of data, the historical data could be gathered for only 18 years.

Practical implications

Investors in Thailand show their preference for dividend incomes. This could be the catering incentive of the firm to decide to pay dividends.

Originality/value

This paper offers the evidence of catering incentives of dividend proposed by Baker and Wurgler in the emerging market. Even though the result is not strong, it can be the evidence supporting the catering theory of dividend, not only in well‐developed markets, but also in emerging markets such as Thailand.

Details

Studies in Economics and Finance, vol. 30 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 22 April 2020

Nadia Loukil

The purpose of this study tests whether political instability influence financial decision-making behavior of Tunisian-listed firms, in particular dividend payout policy.

Abstract

Purpose

The purpose of this study tests whether political instability influence financial decision-making behavior of Tunisian-listed firms, in particular dividend payout policy.

Design/methodology/approach

This paper uses dividend payout decisions announced over the period 2008–2015 by nonfinancial firms listed on the Tunisian Stock Exchange. A logistic regression is applied to analyze the relationship between political instability and dividend payout decision “changes. These latter are: past non-payers” dividend initiation, past payers' dividend termination, dividend payout “increasing and dividend payout” decreasing. Political instability variables used are as follows: number of changes in government head and dummy variables indicating the changes of ruling party and election year.

Findings

This study shows that government head changes are positively related to dividend initiation decisions while changes in ruling party are negatively related to termination dividend decisions except for family controlled ones. These firms are more likely to stop dividend on period of ruling party changes. Moreover, firms become unwilling to increase dividend payment on the period of political instability (changes in ruling party and government head and elections) and become willing to decrease dividend payment only when the government head changes.

Practical implications

The empirical findings contribute to the current debate on the signaling power of dividend policy in emerging market where raising equity capital is difficult and controlling shareholders prefer reinvest benefit to pay dividends. In addition, this study has important implications for regulators and governments struggling to design policies to improve investors' confidence and boost market activity. Indeed, investors may use corporate payout as a signal for better governance.

Originality/value

To the author' best knowledge, this paper is the first to investigate and to compare the effect of three political instability sources; government head changes, changes in ruling party and elections, on dividend payout decision changes. This paper provides evidence that firms facing political unstable environment seek to achieve two goals when they make dividend policy: reducing financial distress probability and attracting minority owners.

Details

EuroMed Journal of Business, vol. 15 no. 2
Type: Research Article
ISSN: 1450-2194

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