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Article
Publication date: 12 June 2017

Richard Hauser and John H. Thornton Jr

The purpose of this paper is to investigate an empirical solution to dividend policy relevance.

Abstract

Purpose

The purpose of this paper is to investigate an empirical solution to dividend policy relevance.

Design/methodology/approach

The paper combines measures of firm maturity in a logit regression to define a comprehensive life-cycle model of the likelihood of dividend payment. The valuation of firms that conform to the model is compared to the valuation of firms that do not fit the model. Valuation is measured by the market to book (M/B) ratio.

Findings

The analysis indicates that dividend policy is related to firm value. Dividend-paying firms that fit the life-cycle model have a higher median valuation than dividend-paying firms that do not fit the life-cycle model. Similarly, non-paying firms that fit the life-cycle model have a higher median valuation than non-paying firms that do not fit the life-cycle model. The results also provide evidence that the disappearing dividend phenomenon is related to shifts in valuation.

Research limitations/implications

This paper focuses on the payment of dividends. Stock repurchases are not considered.

Practical implications

The results indicate that dividend policy is related to firm value. Approximately 15 percent of sample observations have a dividend policy counter to the life-cycle model.

Originality/value

This paper shows that the relation between a firm’s M/B ratio and dividend policy changes over the firm’s life-cycle. It also shows that the catering motive for dividends is strongest among firms that are outliers in the life-cycle model and firms of intermediate maturity.

Details

Managerial Finance, vol. 43 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 21 June 2013

H. Kent Baker, Bin Chang, Shantanu Dutta and Samir Saadi

The purpose of this paper is to examine cash dividends and stock repurchases in Canada from 1988 to 2006 and their relationship with earnings.

Abstract

Purpose

The purpose of this paper is to examine cash dividends and stock repurchases in Canada from 1988 to 2006 and their relationship with earnings.

Design/methodology/approach

The study uses logistic regressions to examine the likelihood of paying dividends and the timing of repurchases and OLS regressions to examine the level of payout.

Findings

The fraction of dividendpaying firms declines from 1988 to 2001 and then slightly rebounds until the end of the sample period in 2006. Firm size, profitability, investment opportunities, and catering incentives explain the likelihood of paying dividends. Unlike US firms, Canadian repurchase‐only firms do not become important payers in terms of either the percentage of firms or the level of payout. Dividend‐only firms pay out significant amounts of cash. Firms with both regular dividends and regular repurchases pay out the largest amount. The payout of different groups of payers is determined by their earnings. Testing firms with both regular dividends and regular repurchases reveals that earnings, undervaluation, and availability of cash explains the timing of repurchases but earnings mainly explains the level of repurchases.

Research limitations/implications

Canadian data are unavailable after 2006, which precludes investigating the potential implications of the financial crisis beginning in 2007.

Originality/value

This is the first paper to analyze the evolution of the relationship between payout and earnings in Canada.

Details

International Journal of Managerial Finance, vol. 9 no. 3
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 13 August 2018

Vahap Uysal and Seth Hoelscher

Local investors have the ability to impact the stock prices and returns of local firms. However, the impact of news made by a firm on local investors and neighboring…

Abstract

Purpose

Local investors have the ability to impact the stock prices and returns of local firms. However, the impact of news made by a firm on local investors and neighboring companies is absent from the academic literature. The purpose of this paper is to fill that void and examine how a local investor clientele affects the stock market reactions of firms located within the same geographic proximity as a news-generating firm.

Design/methodology/approach

After accounting for firm, industry, and geographic characteristics, this study examines how a firm’s dividend initiation announcement (positive news) influences stock prices of seemingly unrelated firms within the same metropolitan statistical area (MSA).

Findings

Dividend-paying firms located in areas with a higher percentage of dividend clientele experience a positive comovement reaction when a seemingly unrelated firm within the same MSA announces a dividend initiation. The positive reactions are specifically for dividend-paying firms, while non-dividend payers exhibit no significant response. These results are robust to numerous regression methods and alternative explanations.

Practical implications

These findings are consistent with the positive-investor-attention hypothesis, suggesting positive spillover effects from news announcements for other local firms in the presence of individual investor clientele.

Originality/value

This is the first study to link how news generated by one firm can influence other geographically local firms, providing evidence on the impact of individual investor clientele on stock returns of local non-news firms.

Details

Review of Behavioral Finance, vol. 10 no. 3
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 14 March 2016

John Consler and Greg M. Lepak

The purpose of this paper is to describe and compare the mean response for selected financial variables in three dividend paying groups before and after the financial…

Abstract

Purpose

The purpose of this paper is to describe and compare the mean response for selected financial variables in three dividend paying groups before and after the financial crisis of 2008. Dividend initiators are expected to be rewarded by investors over traditional dividend paying firms.

Design/methodology/approach

Quarterly CRSP data from 2000 to 2012 are used to define dividend paying groups. Highly unbalanced financial data on dividend paying firms are analyzed in two truncated sample periods defined before and after the financial crisis. Fitted models describing differences in dividend paying groups are based on the linear mixed model representation of penalized splines with random effects to account for repeated measures over time.

Findings

Results are presented on the important differences in selected financial variables before and after the financial crisis by dividend paying pattern group (traditional, initiators, residual/catering). Special emphasis is given to the analysis of market/book value ratio. Results demonstrate dividend initiators are rewarded over traditional dividend firms by investors. Firms with an intermittent paying pattern have no advantage. All dividend paying firms grow during the 2008 financial crisis. Traditional dividend payers have larger size than other dividend payers. The size effect explains results for several of the financial variables studied.

Research limitations/implications

Future work can include an industry effect on the three dividend paying groups.

Practical implications

Investors appear to prefer certainty as to when they receive a dividend over uncertainty, especially in times of economic downturn and economic recovery.

Social implications

Enhanced awareness that different payment patterns exist and are rewarded differently over time on both the corporate issuer and investor sides.

Originality/value

This study adds to body of knowledge of practical dividend payment patterns around a financial crisis. It also provides added support for dividend initiators.

Details

Managerial Finance, vol. 42 no. 3
Type: Research Article
ISSN: 0307-4358

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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: 29 April 2014

Febriela Sirait and Sylvia Veronica Siregar

– This research aims to examine the relationship between dividend payment and earnings quality.

Abstract

Purpose

This research aims to examine the relationship between dividend payment and earnings quality.

Design/methodology/approach

The authors examine four dividend features: dividend-paying status, dividend size, dividend changes, and dividend persistence. The samples consist of 90 firms from the manufacturing industry in the years 2005-2009. Multiple regression is used for testing hypotheses.

Findings

The results show that dividend-paying status, dividend increase, and persistence in dividend payment have significant positive association with earnings quality. However, the authors do not find evidence that larger dividend size is an indicator of higher earnings quality. Overall, the results show that dividend-paying status, increase in dividend size, and persistence in dividend payment are indicators or signals of higher earnings quality.

Research limitations/implications

This study examines only the manufacturing firms listed on the Indonesia Stock Exchange. Further study based on different industries and/or different emerging markets is needed before generalizing results.

Originality/value

Few studies have examined dividend payment in emerging markets. This study fills the void.

Details

International Journal of Accounting and Information Management, vol. 22 no. 2
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 9 October 2017

Surendranath R. Jory, Thanh Ngo and Hamid Sakaki

The purpose of this paper is to empirically examine the link between institutional ownership stability and dividend payout ratio.

Abstract

Purpose

The purpose of this paper is to empirically examine the link between institutional ownership stability and dividend payout ratio.

Design/methodology/approach

First, the authors estimate the propensity of a firm to pay dividend. Next, the authors perform panel fixed-effect regressions of dividend payouts on institutional ownership stability variables. The authors also compare institutional ownership between dividend paying and non-dividend paying investee firms. The authors analyze the dividend preferences of different types of institutional owners. Finally, the authors examine the cross-sectional variation in the volatility of dividend payouts.

Findings

The authors find that stable and large institutional owners favor dividend paying companies. There also exists a positive association between ownership persistence and dividend payout. Conversely, firms that change their dividend payout frequently are associated with larger deviations in institutional ownership. Additionally, the presence of pressure-sensitive institutional investors (i.e. investors that also hold business ties with the investee firm) is significantly linked to dividend payout policy. Conversely, pressure-insensitive investors use alternative forms of monitoring instead of requiring investee firms to pay dividends, which serve to reduce agency conflicts.

Originality/value

This paper considers the preferences of long-term stable institutional investors in their selection of dividend paying firms.

Details

Managerial Finance, vol. 43 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 11 November 2014

Xin Chen, Lin Tang and Haiou Hu

The purpose of this paper is to examine preferences of Chinese individual and institutional investors to cash dividends and stock dividends. Using categorized daily…

Abstract

Purpose

The purpose of this paper is to examine preferences of Chinese individual and institutional investors to cash dividends and stock dividends. Using categorized daily holding information from the TOPVIEW database, the authors test how percentage holdings of individuals and institutional investors change, respectively, around annual report dates and registration dates.

Design/methodology/approach

The results show that individuals and institutional investors often express heterogeneous preferences to dividends. After controlling for firm size and market performance, the authors find that the higher the ratio of stock dividend is, the more likely institutional investors will increase their overall holdings of the stock-dividend-paying firm in the week after annual report date, but they do not prefer to do so around registration dates. Meanwhile, the higher the ratio of stock dividend is, the more likely individual investors will increase their overall holdings of the stock-dividend-paying firm in the week before registration date, but do not prefer to do so after annual report dates. Such patterns do not exist for cash-dividend-paying firms.

Findings

The results imply that different types of investors chase high stock-dividend-paying firms at different stages of dividend events. The findings are consistent with the hypothesis of “price illusion,” but do not lend support to the signaling hypothesis of stock dividends.

Originality/value

This paper uses categorized data of daily share holdings to test how different types of minority shareholders respond to stock dividends and cash dividends for the first time. It sheds lights on the on-going academic debate about the “stock dividend puzzle” in China.

Details

China Finance Review International, vol. 4 no. 4
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 13 January 2012

H. Kent Baker and Gary E. Powell

This study aims to survey managers of dividendpaying firms listed on the Indonesian Stock Exchange (IDX) to learn their views about the factors influencing dividend

Abstract

Purpose

This study aims to survey managers of dividendpaying firms listed on the Indonesian Stock Exchange (IDX) to learn their views about the factors influencing dividend policy, dividend issues, and explanations for paying dividends. The study also aims to focus on Indonesia, the largest national economy in Southeast Asia, because relatively few studies examine why Indonesian firms pay dividends.

Design/methodology/approach

The primary means of gathering data is a mail survey. The two‐page survey instrument consists of three main sections: 22 factors for determining a firm's dividend policy; six questions that provide background information about the respondents and their firms; and 27 statements about dividend policy in general. Of the 163 firms surveyed, 52 firms responded, resulting in a response rate of 31.9 per cent.

Findings

The evidence shows that managers view the most important determinants of dividends as the stability of earnings and the level of current and expected future earnings. They also believe that the effects of dividends on stock prices and needs of current shareholders are important determinants. The evidence shows that managers of Indonesian firms perceive that dividend policy affects firm value. Managers seem to agree that multiple theories including signaling, catering, and life cycle explanations help to explain why their firms pay dividends.

Research limitations/implications

The study focuses on a limited number of factors and issues involving dividend policy. While non‐response bias could potentially limit making generalizations to the population of IDX firms, statistical tests show no significant differences between respondents and non‐respondents on various firm characteristics.

Practical implications

The evidence suggests that no universal set of factors is likely to be applicable to all firms when setting dividend policy.

Originality/value

This study presents new evidence on the perceptions of managers of dividendpaying IDX‐listed firms about the factors influencing dividend policy, dividend issues, and explanations for paying dividends.

Details

Journal of Asia Business Studies, vol. 6 no. 1
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 1 February 2016

Basil Al-Najjar and Erhan Kilincarslan

This paper aims to investigate the impact of ownership structure on dividend policy of listed firms in Turkey. Particularly, it attempts to uncover the effects of family…

Abstract

Purpose

This paper aims to investigate the impact of ownership structure on dividend policy of listed firms in Turkey. Particularly, it attempts to uncover the effects of family involvement (through ownership and board representation), non-family blockholders (foreign investors, domestic financial institutions and the state) and minority shareholders on dividend decisions in the post-2003 period as it witnesses the major economic and structural reforms.

Design/methodology/approach

The paper uses alternative dividend policy measures (the probability of paying dividends, dividend payout ratio and dividend yield) and uses appropriate regression techniques (logit and tobit models) to test the research hypotheses, by focusing on a recent large panel dataset of 264 Istanbul Stock Exchange-listed firms (non-financial and non-utility) over a 10-year period 2003-2012.

Findings

The empirical results show that foreign and state ownership are associated with a less likelihood of paying dividends, while other ownership variables (family involvement, domestic financial institutions and minority shareholders) are insignificant in affecting the probability of paying dividends. However, all the ownership variables have a significantly negative impact on dividend payout ratio and dividend yield. Hence, the paper presents consistent evidence that increasing ownership of foreign investors and the state in general reduces the need for paying dividends in the Turkish market.

Research limitations/implications

Because of the absence of empirical research on how ownership structure may affect dividend policy and the data unavailability for earlier periods in Turkey, the paper cannot make comparison between the pre-and post-2003 periods. Nevertheless, this paper can be a valuable benchmark for further research.

Practical implications

The paper reveals that cash dividends are not used as a monitoring mechanism by investors in Turkey and the expropriation argument through dividends for Turkish families is relatively weak. Accordingly, the findings of this paper may benefit policymakers, investors and fellow researchers, who seek useful guidance from relevant literature.

Originality/value

To the best of the authors’ knowledge, this paper is the first to examine the link between ownership structure and dividend policy in Turkey after the implementation of major reforms in 2003.

Details

Corporate Governance: The International Journal of Business in Society, vol. 16 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

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