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1 – 10 of over 2000
Article
Publication date: 7 September 2020

Narcisa Meza, Anibal Báez, Javier Rodriguez and Wilfredo Toledo

This paper aims to examine the relationship between the dividend signaling hypothesis and a firm's life cycle.

Abstract

Purpose

This paper aims to examine the relationship between the dividend signaling hypothesis and a firm's life cycle.

Design/methodology/approach

The authors use Dickinson's (2011) methodology to develop a proxy for the firm's stages in its life cycle and to examine the relationship between dividends and future earnings following a nonlinear setting.

Findings

Using a sample of US firms during the 2000–2014 period, the authors find that the signaling hypothesis can be dependent on firm-specific characteristics, such as life cycle stages. The authors report that the relationship between dividend changes and subsequent earnings changes is different for different life stages. They also find that changes in the amount of the dividend provide some information about future earnings, especially during the early (introductory and growth) stages. These results are consistent with the use of earnings or return on assets as the dependent variables in models of earnings expectations.

Originality/value

The authors believe that this is the first time that the dividend signaling hypothesis has been linked to the life cycle of the firm.

Details

Managerial Finance, vol. 46 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 29 July 2014

Reza H. Chowdhury, Min Maung and Jenny Zhang

– The purpose of this paper is to examine the signaling and free cash flow hypotheses of dividends in the context of an emerging financial market.

Abstract

Purpose

The purpose of this paper is to examine the signaling and free cash flow hypotheses of dividends in the context of an emerging financial market.

Design/methodology/approach

The authors use fundamental financial information of Chinese companies listed in the Shenzhen and Shanghai stock exchanges. They examine the impact of cash dividend payments on future profitability of individual firms with and without controlling for non-linearity in their earnings to test the signaling hypothesis. They also determine the characteristics of dividend paying firms to examine the free cash flow hypothesis.

Findings

It was found that while dividend increases by publicly listed Chinese firms are followed by increases in earnings in two subsequent years, such relationship does not exist in the case of dividend decreases. However, under the assumption of non-linearity of earnings, it was found that neither dividend increases nor dividend decreases convey any valuable information about future changes in earnings of Chinese firms. Further, it was found that firms with high cash holdings, large profitability and high managerial efficiency are likely to pay dividends. The authors therefore conclude that announcements of cash dividend payments do not signal future performance but indicate good governance practices of publicly traded firms in China.

Originality/value

This evidence is critical for potential foreign investors in their portfolio investment decisions and for regulators in determining an efficient measure of corporate disclosure in China.

Details

Studies in Economics and Finance, vol. 31 no. 3
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 1 December 2007

Husam‐Aldin Nizar Al‐Malkawi

This paper examines the determinants of corporate dividend policy in Jordan. The study uses a firm‐level panel data set of all publicly traded firms on the Amman Stock…

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Abstract

This paper examines the determinants of corporate dividend policy in Jordan. The study uses a firm‐level panel data set of all publicly traded firms on the Amman Stock Exchange between 1989 and 2000. The study develops eight research hypotheses, which are used to represent the main theories of corporate dividends. A general‐to‐specific modeling approach is used to choose between the competing hypotheses. The study examines the determinants of the amount of dividends using Tobit specifications. The results suggest that the proportion of stocks held by insiders and state ownership significantly affect the amount of dividends paid. Size, age, and profitability of the firm seem to be determinant factors of corporate dividend policy in Jordan. The findings provide strong support for the agency costs hypothesis and are broadly consistent with the pecking order hypothesis. The results provide no support for the signaling hypothesis.

Details

Journal of Economic and Administrative Sciences, vol. 23 no. 2
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 10 July 2017

Susana Yu and Gwendolyn Webb

The purpose of this paper is to examine the dividend initiation announcements made by firms in the information technology sector as defined in a modern system of…

Abstract

Purpose

The purpose of this paper is to examine the dividend initiation announcements made by firms in the information technology sector as defined in a modern system of industrial classification.

Design/methodology/approach

On the basis of a modern classification of the information technology industry, the authors examine a wide range of corporate performance and management measures to discriminate between the two theories of the information revealed by the announcement of dividend initiations, the signaling, and life cycle theories.

Findings

The empirical results are more consistent with the corporate life cycle theory of dividends than with the information signaling hypothesis. This finding helps clarify the nature of the information revealed by the announcement.

Originality/value

The paper has clear implications for investors who are interested in the growth prospects of technology firms, or for others interested in their prospective stability and degree of maturity.

Details

Managerial Finance, vol. 43 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 11 November 2014

Tarek Ibrahim Eldomiaty, Ola Atia, Ahmad Badawy and Hassan Hafez

The literature on the relation between dividends and stock risks include mixed results. The related studies have reached either insignificant, or positive, or negative…

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Abstract

Purpose

The literature on the relation between dividends and stock risks include mixed results. The related studies have reached either insignificant, or positive, or negative results. The authors offer a mathematical structure that addresses potential mutual benefits of dividends signaling under conditions of stock risks (systematic and unsystematic). The mathematical structure demonstrates explicitly a case of risk transfer. The purpose of this paper is to examine the potential benefits to firms and stockholders when financial managers adjust dividends per share (DPS) using percentage change in the explanatory power of systematic and unsystematic risks. This perspective is derived from a practical consideration that dividends are part of stock returns that can be adjusted to take stock risks into account.

Design/methodology/approach

The paper utilizes the specifications of the two-stage (simultaneous) regression and partial adjustment model. The sample includes quarterly data for firms listed in the Dow Jones Industrial Average and NASDAQ for the period December 31, 1989-March 31, 2011.

Findings

The authors have reached general results based on hypotheses developed from related literature. The results show that: first, benefits of risk transfer can be realized. That is, firms as well as stockholders achieve benefits when the DPS are adjusted using percentage change in the explanatory power of systematic risk only; second, dividend growth rates are affected positively by changes in systematic risks; third, the highest stock returns in the market are reached with sharp decreases in dividend growth rates; fourth, in the highest returns quartile, firm size and time do not matter but the industry type does; and fifth, the associations between dividend growth rates, systematic, unsystematic risks, and stock returns are intrinsically nonlinear.

Originality/value

The study contributes to the literature in terms of first, providing practical insights on the financial strategies that help in the use of dividends to convey the right signals to stockholders, and second, empirically show the potential benefits of adjusting dividends growth rates according to systematic and unsystematic stock risks in a unified mathematical structure that adds to the current literature.

Details

Journal of Economic and Administrative Sciences, vol. 30 no. 2
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 14 May 2018

Razaz Felimban, Christos Floros and Ann-Ngoc Nguyen

The purpose of this paper is to investigate the stock market response to dividend announcements in high growth emerging markets of Gulf countries.

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Abstract

Purpose

The purpose of this paper is to investigate the stock market response to dividend announcements in high growth emerging markets of Gulf countries.

Design/methodology/approach

The sample includes 1,092 dividend announcements from 299 listed firms over the period 2010-2015.

Findings

In the environment where there is an absence of capital gain and income tax, the authors find some evidence for the stock price reaction that partly supports the signaling hypothesis. The findings show that the Gulf Cooperation Council (GCC) market is inefficient because of the leakage information before the announcement in bad news, and the delay of share price adjustment in good news. In addition, the authors report significant trading volume (TV) reaction in all the three announcements clusters, where dividends increase, decrease, and are constant, lending support to the hypothesis that the dividend change announcements have an impact on the TV response due to different investors’ preferences.

Originality/value

This is the first empirical paper on market reaction in share price and TV around dividend announcement using data for the majority of GCC countries.

Details

Journal of Economic Studies, vol. 45 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 15 March 2019

Friday Kennedy Ozo and Thankom Gopinath Arun

Very little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this…

Abstract

Purpose

Very little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this paper is, therefore, to provide empirical evidence on this issue by investigating the stock price reaction to cash dividends by companies listed on the Nigerian Stock Exchange.

Design/methodology/approach

Standard event study methodology, using the market model, is employed to determine the abnormal returns surrounding the cash dividend announcement date. Abnormal returns are also calculated employing the market-adjusted return model as a robustness check and to test the sensitivity of the results to β estimation. The authors also examine the interaction between cash dividends and earnings by estimating a regression model where announcement abnormal returns are a function of both dividend changes and earnings changes relative to stock price.

Findings

The study find support for the signaling hypothesis: dividend increases are associated with positive stock price reaction, while dividend decreases are associated with negative stock price reaction. Companies that do not change their dividends experience insignificant positive abnormal returns. The results also suggest that both dividends and earnings are informative, but dividends contain information beyond that contained in earnings.

Research limitations/implications

The sample for the study includes only cash dividend announcements occurring without other corporate events (such as interim dividends, stock splits, stock dividends, and mergers and acquisitions) during the event study period. The small firm-year observations may limit the validity of generalizations from these conclusions.

Practical implications

The findings are useful to researchers, practitioners and investors interested in companies listed on the Nigerian stock market for their proper strategic decision making. In particular, the results can be used to encourage transparency and good governance practices in the Nigerian stock market.

Originality/value

This paper adds to the very limited research on the stock market reaction to cash dividend announcements in Nigeria; it is the first of its kind employing a unique cash dividends data.

Details

Managerial Finance, vol. 45 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 20 February 2009

Hoje Jo and Carrie Pan

The purpose of this paper is to examine the relation between managerial entrenchment and dividend policy for a large number of US industrial firms and examine the relative…

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Abstract

Purpose

The purpose of this paper is to examine the relation between managerial entrenchment and dividend policy for a large number of US industrial firms and examine the relative importance of three competing explanations behind the empirical association between managerial entrenchment and dividend policy, namely, the entrenchment irrelevance hypothesis, the dividend signaling hypothesis, and the optimal entrenchment hypothesis.

Design/methodology/approach

Utilizing all firms in the Investor Responsibility Research Center database, Compustat and center for research in security prices (CRSP), this paper investigates firm's propensity to pay dividends based on various logit and Tobit regressions as a function of managerial entrenchment measured by Gompers et al. G index after controlling for known determinants of firms' dividend decisions during the period from 1990 to 2003.

Findings

Results show that firms with entrenched managers are more likely to pay dividends. Their high propensity to pay persists over time. A large cash reserve can be used to deter hostile takeovers. Paying dividends reduces cash holdings, leaving the firm more vulnerable to hostile takeovers. In equilibrium, value‐maximizing firms with weak investment opportunities provide managers against takeovers to induce them to distribute cash rather than build a warchest against unwanted takeovers.

Originality/value

The main finding confirms the belief that firms choose a combination of anti‐takeover provisions and dividend policy to maximize shareholder value, evidence in favor of the optimal entrenchment hypothesis.

Details

Review of Accounting and Finance, vol. 8 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 3 October 2008

Apostolos Dasilas, Katerina Lyroudi and Demetrios Ginoglou

The purpose of this paper is to empirically investigate stock price and trading volume reactions to simultaneous interim dividend and earnings announcements by the Greek…

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Abstract

Purpose

The purpose of this paper is to empirically investigate stock price and trading volume reactions to simultaneous interim dividend and earnings announcements by the Greek firms listed on the Athens stock exchange (ASE).

Design/methodology/approach

Classical event study methodology was employed to examine the share price and trading volume reaction to interim dividends and earnings announcements.

Findings

Results confirm the signaling hypothesis which predicts positive market reaction to the joint dividend and earnings announcements. However, the magnitude of the price reaction initiated by the final dividend announcement seems to be higher than the one by the interim dividend announcement.

Research limitations/implications

The observations are not many, although the whole population was included, since there are no data available prior to 1998.

Practical implications

The findings are useful to researchers, practitioners and investors who have an interest in firms listed on the ASE for their proper strategic decision making.

Originality/value

For the first time, the stock price and trading volume behaviour of firms listed on the ASE around contemporaneous dividend and earnings announcement dates is examined.

Details

Studies in Economics and Finance, vol. 25 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 12 June 2020

Yogesh Chauhan and Rajesh Pathak

The paper examines how earnings transparency affects dividend payouts for Indian firms. The authors also explore the channels through which earnings transparency affects…

Abstract

Purpose

The paper examines how earnings transparency affects dividend payouts for Indian firms. The authors also explore the channels through which earnings transparency affects dividend payouts.

Design/methodology/approach

The authors employ panel data estimation with fixed effects to examine the role of earnings transparency on dividend payouts. The authors also use path analysis to explore causation. The paper uses a sample of more than 2000 Indian listed firms, over the period 2001–2016.

Findings

The authors report that firms showing grater earning transparency pay more cash dividend. Their results do not support the signaling hypothesis about the dividend. However, these results provide explicit support to the theory that corporate dividend policy is an outcome of information asymmetry. Moreover, the path analysis reveals the effect of earnings transparency on corporate payout through the financial constraint channel. The results are robust to idiosyncratic controls; alternate measures of payout; alternate models; endogeneity concerns; and the alternate channel of returning money to stockholders.

Practical implications

Managers should also examine earnings transparency while formulating an adequate dividend policy for their firms. This study also helps investors to identify dividend-paying stocks.

Originality/value

This study particularly contributes to the literature examining the effect of earnings quality on dividend payouts through its effect on financial constraints. We, therefore, connect two streams of research that contemplate the relation between accounting-based information variables and dividend payouts and the relationship between financial constraints and dividend payouts. Moreover, using path analysis uniquely, the authors provide evidence on the relative importance of both the direct and the indirect link.

Details

International Journal of Managerial Finance, vol. 17 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

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