Search results

The internal factors that influence the decision to change dividend growth rates include two competing models: the earnings and free cash flow models. As far as each of the components of each model is considered, the informative and efficient dividend payout decisions require that managers have to focus on the significant component(s) only. This study examines the cointegration, significance, and explanatory power of those components empirically. The expected outcomes serve two objectives. First, on an academic level, it is interesting to examine the extent to which payout practices meet the premises of the earnings and free cash flow models. The latter considers dividends and financing decisions as two faces of the same coin. Second, on a professional level, the outcomes help focus the management’s efforts on the activities that can be performed when considering a change in dividend growth rates.

This study uses data for the firms listed in two indexes: Dow Jones Industrial Average (DJIA30) and NASDAQ100. The data cover quarterly periods from 30 June 1989 to 31 March 2011. The methodology includes (a) cointegration analysis in order to test for model specification and (b) classical regression in order to examine the explanatory power of the components of earnings and free cash flow models.

The results conclude that: (a) Dividends growth rates are cointegrated with the two models significantly; (b) Dividend growth rates are significantly and positively associated with growth in sales and cost of goods sold only. Accordingly, these are the two activities that firms’ management need to focus on when considering a decision to change dividend growth rates, (c) The components of the earnings and free cash flow models explain very little of the variations in dividends growth rates. The results are to be considered a call for further research on the external (market-level) determinants that explain the variations in dividends growth rates. Forthcoming research must separate the effects of firm-level and market-level in order to reach clear judgments on the determinants of dividends growth rates.

This study contributes to the related literature in terms of offering updated robust empirical evidence that the decision to change dividend growth rate is discretionary to a large extent. That is, dividend decisions do not match the propositions of the earnings and free cash flow models entirely. In addition, the results offer solid evidence that financing trends in the period 1989–2011 showed heavy dependence on debt financing compared to other related studies that showed heavy dependence on equity financing during the previous period 1974–1984.

The question that inevitably surfaces in practice, and certainly in lecture halls, is which equity valuation method is superior. Popular opinion holds that academia and investment practitioners may have different preferences in this regard. This article investigates which primary minority and majority equity valuation methods are advocated by academia, and how well these preferences are aligned with the equity valuation methods that investment practitioners apply in practice. The research results reveal that, contrary to popular belief, academia and practice are fairly well aligned in terms of preferred equity valuation methods, with notable differences in their respective approaches.

This research examines the use of econometric models to predict the total net asset value (NAV) of an asset allocation mutual fund. In particular, the mutual fund case used is the Vanguard Wellington Fund (VWELX). This fund maintains a balance between relatively conservative stocks and bonds. The period of the study on which the prediction of the total NAV is based is the 24-month period of 2010 and 2011 and the forecasting period is the first three months of 2012. Forecasting the total NAV of a massive conservative allocation fund, composed of an extremely large number of investments, requires a method that produces accurate results. Achieving this accuracy has no necessary relationship to the complexity of the methods typically employed in many financial forecasting studies.

Recently numerous mergers have been realized. The paper aims to discuss famous static models about the exchange ratio. The paper then seeks to propose a simple dynamical model to valuate both the immediate merger's effects and the delayed ones.

The paper examines from an analytical viewpoint the inequalities of Larson and Gonedes and of Yagil about the exchange ratio. Then, it looks for a possible valuation of future dividends through a dynamical approach.

The paper shows that the results of Larson and Gonedes and of Yagil are substantially the same and, in spite of appareances, do not propose real limitations, but only formal constraints, which need to be further treated before obtaining useful information. The paper then provides sufficient conditions to have dividends and/or prices greater than dividends and/or prices in absence of merger. Finally, an index to valuate synergy is proposed.

On the basis of real data, the model may be tested. Moreover, non‐linear models and a stochastic framework could be considered.

The paper provides a critical viewpoint to consider classical models. Furthermore, the valuation method for future dividends may be applied and the synergy index may be calculated.

Both the results about the classical inequalities (to the authors' knowledge, there is no study in such a sense) and the dynamical model (the paper studies possible gains within a time horizon T and not only at time 0 and it does not obtain the fundamental value of stocks, as Yagil does, but their market price) are original.

In this paper, it is argued that previous estimates of the expected cost of equity and the expected arithmetic risk premium in the UK show a degree of upward bias. Given the importance of the risk premium in regulatory cost of capital in the UK, this has important policy implications. There are three reasons why previous estimates could be upward biased. The first two arise from the comparison of estimates of the realised returns on government bond (‘gilt’) with those of the realised and expected returns on equities. These estimates are frequently used to infer a risk premium relative to either the current yield on index‐linked gilts or an ‘adjusted’ current yield measure. This is incorrect on two counts; first, inconsistent estimates of the risk‐free rate are implied on the right hand side of the capital asset pricing model; second, they compare the realised returns from a bond that carried inflation risk with the realised and expected returns from equities that may be expected to have at least some protection from inflation risk. The third, and most important, source of bias arises from uplifts to expected returns. If markets exhibit ‘excess volatility’, or f part of the historical return arises because of revisions to expected future cash flows, then estimates of variance derived from the historical returns or the price growth must be used with great care when uplifting average expected returns to derive simple discount rates. Adjusting expected returns for the effect of such biases leads to lower expected cost of equity and risk premia than those that are typically quoted.

This article uses Granger‐causality tests to study the dynamic relationship between stock returns and dividend yields in the American and Japanese equity markets. The “signaling” hypothesis of dividends along with the efficient market hypothesis is considered to : a) explain the strong relationship between stock returns and the determinants of stock prices, b) show that our results cannot be considered as evidence against market efficiency.

The retention rate of a company has an impact on its earnings and dividend growth. Corporate management has control over this. However, lease structures in some real estate markets reduce the control of investment managers and force them to adopt full distribution policies and a passive management style. This is likely to impact the rental performance of the real estate by permitting depreciation to go uncorrected. This paper examines several European office markets across which lease structures and retention rates vary. It then compares depreciation rates across these markets. It is concluded that there is evidence of a relationship between retention and depreciation. Markets with particularly inflexible lease structures clearly exhibit low retention rates, and we can tentatively suggest higher levels of rental value depreciation. This poses interesting questions concerning the relationships between lease structures in different markets and their impact on expenditure by owners, and also concerning the impact on building depreciation and property performance. While longer and deeper datasets are necessary to establish direct linkages between lease structures and performance, this paper raises important issues for global investors.

The purpose of this paper is to examine listed companies, grouped by sector, that for decades have shown a dividend growth. Referring to the food and beverage (F&B) industry, the authors have investigated the adoption of an open innovation model in order to fill a gap in the existing literature.

This paper uses a multi-method design linking qualitative and quantitative approaches. The quantitative study was planned in order to identify some US-listed companies, called Dividend Champions that have distributed consistently growing dividends for over 50 years and have beaten the markets. The qualitative study was designed to provide insight into the adoption or not of an open innovation model by the listed companies in the F&B industry in the US market that were selected by the quantitative analysis.

The research is based on an empirical analysis undertaken with 816 listed companies in US markets. In particular, the authors underline 20 companies that over the past 50 years have systematically increased dividend paid, and at the same time, have beaten the market (Standard & Poor’s 500). In all, 30 per cent of the selected companies belong to the consumer goods sector, and F&B companies represent 50 per cent of them. All of these companies (The Coca-Coca Company, Hormel Foods Corporation, and Lancaster Colony Corporation) implement an open innovation model.

To the authors’ knowledge, this is the first exploratory study based on value maximisation and open innovation. An open innovation model increases competitiveness and the durability of competitive advantage, which are main sources of value creation. The paper highlights evidence from the F&B industry, referred to as Dividend Champions, and the adoption of an open innovation model.

The effect of the cost of capital CEC on the investing and financing decisions is a matter of considerable interest and importance to the financial studies. However, the impact of CEC on the stock prices is not well established. This research aims to examine whether the CEC has a significant incremental explanation of the changes in the stock prices which the basic traditional accounting variables could not provide.

Applies the adjusted constant dividend‐growth model to measure the CEC and the incremental explanatory power test on a sample of 37 companies listed on NYSE.

The results indicate that there is non‐significant impact of CEC for the full sample, the small size firms, and the manufacturing firms. However, I find an evidence that CEC has a significant impact on the stock prices for both the large‐size firms and the non‐manufacturing firms.

The study was completed at a specific date of measurement which puts some limitations on the generality of its results.

Assesses whether the cost of equity possess incremental explanation to the change in the stock prices beyond the explanation provided by the traditional accounting variables.

Investors often have much of their portfolios invested in equities that are exposed to interest rate risk. Hedging underlying exposures are not easy; whereas fixed income investors have duration to immunize bond portfolios from small fluctuations in interest rates. US equity duration estimates from dividend discount models result in long durations – often in excess of 50 years. Based on the UK data, we develop an alternative approach to generate equity duration as a by-product of asset pricing. Our analysis suggests that the equity premium puzzle may comprise an important element in reconciling this approach to equity duration, with traditional DDM alternatives.