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This study tests the signaling and tunneling models of dividend policies by examining the relationship between the ownership structure and the dividend payout in a setting where strong institutional governance and weak firm-level governance coexist.

Chinese American Depository Receipts (ADRs) listed in the US offer an excellent opportunity to study dividend policy where strong institutional governance and weak firm-level governance coexist. Using a sample of 161 Chinese ADRs from 2004 to 2018, this study examines the relationship between the firm's ownership structure and cash dividend policy.

This study shows that high levels of controlling shareholder ownership and high levels of state ownership are associated with high dividend payouts. A high level of controlling shareholder ownership has a negative effect on its firm value. Dividend payments in those firms mitigate the negative effect, consistent with the signaling (substitution) model. A high level of state ownership is beneficial to its firm value. However, high dividend payment in those firms decreases the benefit, supporting the tunneling model.

This study covers 161 Chinese ADRs listed in the US with a total market capitalization of over $2 trillion and reveals that dividend tunneling could occur in Chinese government controlled ADRs. Findings in this study would offer valuable insights for US investors and regulators.

This paper extends the tunneling hypothesis to the topic of dividend policy in a setting where strong institutional governance and weak firm-level governance coexist. This study shows that tunneling through dividends can happen among Chinese government controlled ADRs in the US. It also complements the literature by extending the examination of the dividend tunneling model from a relatively small universe of master limited partnership (Atanssov and Mandell, 2018) to a larger universe of Chinese ADRs listed in the US with a total market capitalization over $2 trillion US dollars.

This chapter presents both main arguments of dividend policy theories and their empirical evidence. According to Miller and Modigliani (1961), dividend decisions are not relevant to firm value in a perfect capital market. Nevertheless, there are several market frictions in the real world (e.g., information asymmetry, agency problems, transaction costs, firm maturity, catering incentives and taxes). Therefore, academics use them to develop theories which help them explain corporate dividend decisions. Particularly, signaling theory considers dividend payments as a signal about firms' future prospects since outside investors face information disadvantage. “Bird-in-hand” theory argues that investors prefer dividends to capital gains since the former have lower risk than the latter. Agency theory is developed from the conflict of interest between corporate managers and shareholders. Corporate managers have high incentives to restrict dividend payments. Furthermore, transaction cost theory and pecking order theory posit that firms prefer internal to external funds. This drives firms to hold more cash and pay less dividends. Life cycle theory explains dividend policy by firm maturity. Mature firms have fewer investment opportunities, and thus, they tend to pay more dividends. Catering theory states that dividend decisions are based on investors' demand. Firms pay more dividends since investors prefer dividends and assign higher value to dividend payers. Tax clientele theory argues that firms that have corporate dividend policy rely on the comparative income tax rates for dividends and capital gains. Under the tax discriminations against dividends, firms tend to restrict their dividends in order to increase their stock prices.

This chapter introduces dividend smoothing, presents theories to explain dividend smoothing behavior, and analyzes how different levels of business environment affect dividend smoothing. First, dividend smoothing describes a mechanism in which a firm is reluctant to reduce dividends and only increases dividends when its earnings increase permanently. In practice, dividend smoothing behavior is found in both developed and developing countries. Firms in developed countries are more likely to smooth dividends than those in developing countries. Second, although Miller and Modigliani (1961) posit that investors are indifferent between stable and unstable dividend payments in a perfect environment, market frictions in the real world make stable and unstable dividends have different effects on firm value. Three common frictions are information asymmetry, agency problem, and investors' demand for income smoothing. Due to information asymmetry between insiders and outsiders, firms tend to smooth their dividends to signal outside investors about their quality. In addition, dividend smoothing may be the substitute for weak corporate governance and/or the outcome of free cash absorption behavior. Besides, dividends are more convenient for investors' consumption; therefore, firms are more likely to smooth dividends in order to satisfy investors' demand for smooth income. Finally, as a special dividend decision, dividend smoothing is also affected by an internal micro (industry) and macro-environment. Dividend smoothing theories are the behind mechanisms to explain these effects.

This paper investigates the impact of annual reports complexity (associated with tone complexity) on dividend policy and value of dividend policy.

This paper uses the variable complexity provided by the textual analytics software (Diction 7.0) as the proxy for annual reports' tone complexity. The data covered non-financial American firms from years 2011–2019. The pooled ordinary least squares (OLS) regression and the instrumental variable regression are used to test the study’s arguments.

The findings suggest that the signaling theory of dividends holds in the United States. Firms with more complex annual reports tend to distribute more dividends, mainly in environment of high information. When information asymmetry is high, managers would use dividends as a tool to mitigate information asymmetry. Furthermore, the findings suggest that dividend policy has a stronger impact on firm value, especially when the tones of annual reports are highly complex. These findings support the previous results, namely, that managers would opt for dividend policy as a signaling tool for its positive impact on firm value. The results are robust to potential endogeneity issues and alternative proxies for both dividend policy and information asymmetry.

The results demonstrate that the dividends' signaling theory holds in the United States, where the findings cannot be generalized to all markets; However, the findings of this research can be of use to potential and current investors, users of annual reports and decision makers as well.

The paper highlights the effect of the tone complexity of annual reports (using 10K text analytics) on the value of dividend policy and dividend policy itself in a developed economy. Understanding this relation will enable stakeholders to forecast future dividends, choose more appropriate valuation methods and hence restore investors' faith.

This paper empirically examines whether sophisticated governance mechanism affects the relationship between earnings management and dividend policy of non-financial firms.

The sample of the study includes non-financial firms listed on the stock exchanges of twenty developed and developing economies from the period 2005–2017. The Generalized Method of Moments (GMM) was applied to estimate the econometric models.

The results confirm the positive association between earning management and the dividend payout ratio of the sample firms. These findings are in line with the signaling theory, which suggests that firms engage in earnings manipulation to signal to the market that they can maintain a smooth dividend distribution. Moreover, findings suggest that board independence, being a mechanism of corporate governance, significantly negatively moderated the relationship between earnings management and the dividend payout ratio of non-financial firms.

The findings provide valuable suggestions to government bodies, regulatory authorities and corporate managers to focus on the effectiveness of governance mechanisms to improve the reliability of financial reports.

These findings imply that the effect of earning management on the dividend payout ratio is less pronounced in firms with more independent directors on the company board.

This study aims to investigate whether the extent of corporate disclosure, proxied by COVID-19-related disclosure, affects the dividend policy of listed firms.

The study uses a multinomial logistic regression model to examine the relation between corporate disclosure and the dividend policy of the 100 largest market-cap firms in Vietnam in 2021. The COVID-19 pandemic, with its unique impact on business operations, serves as the backdrop for this analysis.

The findings indicate that firms with more extensive COVID-19-related disclosure are more inclined to distribute dividends in the form of stocks or cash instead of omitting them.

This research contributes to the understanding of how corporate disclosure practices influence a firm’s financial decisions, particularly in the context of the COVID-19 pandemic. The findings hold implications for corporate financial decision-making during times of macroeconomic shock.

As a financial policy, dividend policy significantly affects firm value. This chapter analyzes how stock prices react to dividend decisions. First, a dividend payment is an extraction of value; therefore, stock price theoretically drops by the dividend amount on the ex-dividend day. In practice, the price drop and the dividend magnitude are not equal because of tax clientele, short-term trading, and market microstructure. Investors are indifferent in trading stocks before and after stocks go ex-dividend if they obtain equal marginal benefits from the two trading times. The difference in tax rates on dividends and capital gains leads to the gap between the price drop and the dividend amount. Moreover, if transaction costs are considerable, investors have high incentives to short-sell stocks until they cannot obtain more profits. The final outcome of this short-term trading is the difference between the price drop and the dividend amount. Furthermore, market microstructure factors such as limit orders, bid-ask spread, and price discreteness also create this gap. Second, dividend announcements convey valuable information to outsiders. When firms announce increases (decreases) in dividends, their stock prices tend to increase (decrease). Third, dividend policy is negatively related to stock price volatility. This negative relationship is explained by duration effect, rate of return effect, arbitrage realization effect, and information effect. Empirical evidence for this relationship is found in many countries. Finally, dividend smoothing is also considered as a signal about firms' future earnings. Consequently, firms with stable dividends have higher market value. In other words, dividend stability has a positive effect on stock prices.

This study aims to investigate the effects of peers on corporate payout policies in one of the largest emerging markets – India. It also examines the motives for mimicking payout decisions.

The sample is composed of 3,024 non-financial and non-government firms listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) for the period 1995 to 2020. To encounter the endogeneity problem, the instrumental variable technique based on peer firms' idiosyncratic risk is used to estimate the effects of peers on firms' payout policy. To define peer reference groups, the authors use the basic industry classification of the firms.

The results indicate a significant positive impact of peers on firms' dividend policies in India. A firm with all dividend-paying peers is more likely to declare dividends than the one with no dividend-paying peers. Further, peer effects are found to be more pronounced amongst larger and older firms, thus supporting the rivalry theory of mimicking.

To the best of the authors' knowledge, the present study is the first of its kind that attempts to understand peer effects on payout decisions in an emerging market India, that offers a unique institutional setting. Moreover, the authors extend the existing literature by investigating the peer effects on a firm's payout policies considering various firm-level characteristics, such as growth opportunity, cash holding, financial constraint and profitability, which previous studies have not taken into consideration. These results provide additional insights into the heterogeneity and motives behind peer effects.

The study investigates the relationship between corporate social responsibility (CSR) and dividend policy in the context of Indian firms, as well as how regulatory interventions in the form of mandated CSR can moderate this relationship.

A sample of the largest 500 companies listed on the National Stock Exchange from 2008 to 2019 is used in the study. The authors employ the system generalized method of moments since this estimation technique yields accurate and consistent findings in a dynamic panel data setting.

The authors find that CSR is positively associated with dividend payments. Increased incomes and lower financial constraints are the likely factors causing this relationship. Additional analysis suggests that the positive relationship is stronger for mature firms and for firms with higher information asymmetry. Financial reporting quality works in tandem with CSR to boost dividends. Regulatory interventions in the form of mandated CSR weaken the relationship. Finally, the speed of adjustment of dividends is relatively faster for socially responsible firms.

The positive association between CSR and dividends suggests that the interest of shareholders and other non-financial stakeholders can be reconciled. Additionally, businesses should attempt to strategically implement their CSR plans in accordance with the requirements of Section 135 of the Companies Act, 2013 to avoid any unfavourable moderating effects of the legislation. The results also show that CSR disclosures complement rather than serve as a substitute for financial disclosures.

The study is the first to evaluate the relationship between CSR and dividends in the context of India, which is a pioneer in passing legislation that mandates CSR for firms surpassing a threshold. The authors also identify financial constraints as a channel through which CSR affects dividends.

This paper aims to investigate the impact of corporate dividend policy on the capital structure in the Korean stock market. To distinctly discern the voluntariness of changes in corporate dividend policy, we analyze companies that, following a substantial increase, do not reduce dividends for the subsequent two years or, after a significant decrease, do not raise dividends for the following two years. Our empirical findings indicate that companies that increase dividends experience a significant decrease in both book and market leverage, even after controlling for variables such as target leverage ratios. This result suggests that a large increase in dividends can effectively reduce information asymmetry, leading to a lower cost of equity. On the contrary, after a decrease in dividends, both book leverage and market leverage significantly increase, revealing a symmetric relationship between dividend policy and capital structure. In conclusion, large dividend increases in Korean companies not only reduce information asymmetry but also lower the cost of equity capital, resulting in observable changes in the leverage ratio.