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Open Access
Article
Publication date: 31 August 2019

Kwangil Bae

Cassimon et al. (2007) propose a pricing formula of American call options under the multiple dividends by extending Roll (1977). However, because these studies investigate the…

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Abstract

Cassimon et al. (2007) propose a pricing formula of American call options under the multiple dividends by extending Roll (1977). However, because these studies investigate the option pricing formula under the escrow model, there is inconsistency for the assumption of the stock prices. This paper proposes pricing formulas of American call options under the multiple dividends and piecewise geometric Brownian motion. For the formulas, I approximate the log prices of ex-dividend dates to follow a multivariate normal distribution, and decompose the option price as a function of payoffs and exercise boundaries. Then, I obtain an upper bound of the American call options by substituting approximated log prices into the both of the payoffs and the exercise boundaries. Besides, I obtain a lower bound of the price by substituting approximated price only into the exercise boundaries. These upper and lower bounds are exact prices when the amounts of dividends are linear to the stock prices. According to the numerical study, the lower bound produces relatively small errors. Especially, it produces small errors when the dividends are more sensitive to the stock price changes.

Details

Journal of Derivatives and Quantitative Studies, vol. 27 no. 3
Type: Research Article
ISSN: 2713-6647

Keywords

Book part
Publication date: 1 May 2012

Sarin Anantarak

Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there…

Abstract

Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there still remains a lack of consensus for a single explanation of this anomaly. Different from other studies, this dissertation attempts to answer the primary research question: how can investors make trading profits from the ex-dividend day anomaly and how much can they earn? With this goal, I examine the economic motivations of equity investors through four main hypotheses identified in the anomaly's literature: the tax differential hypothesis, the short-term trading hypothesis, the tick size hypothesis, and the leverage hypothesis.

While the U.S. ex-dividend anomaly is well studied, I examine a long data window (1975–2010) of Thailand data. The unique structure of the Thai stock market allows me to assess all four main hypotheses proposed in the literature simultaneously. Although I extract the sample data from two data sources, I demonstrate that the combined data are consistently sampled. I further construct three trading strategies – “daily return,” “lag one daily return,” and “weekly return” – to alleviate the potential effect of irregular data observation.

I find that the ex-dividend day anomaly exists in Thailand, is governed by the tax differential, and is driven by short-term trading activities. That is, investors trade heavily around the ex-dividend day to reap the benefits of the tax differential. I find mixed results for the predictions of the tick size hypothesis and results that are inconsistent with the predictions of the leverage hypothesis.

I conclude that, on the Stock Exchange of Thailand, juristic and foreign investors can profitably buy stocks cum-dividend and sell them ex-dividend while local investors should engage in short sale transactions. On average, investors who employ the daily return strategy have earned significant abnormal return up to 0.15% (45.66% annualized rate) and up to 0.17% (50.99% annualized rate) for the lag one daily return strategy. Investors can also make a trading profit by conducting the weekly return strategy and earn up to 0.59% (35.67% annualized rate), on average.

Details

Research in Finance
Type: Book
ISBN: 978-1-78052-752-9

Article
Publication date: 19 April 2011

John Consler, Greg M. Lepak and Susan F. Havranek

The purpose of this paper is to compare the relative power of operating cash flow and earnings in the prediction of dividends.

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Abstract

Purpose

The purpose of this paper is to compare the relative power of operating cash flow and earnings in the prediction of dividends.

Design/methodology/approach

A linear mixed effects model is used in terms of selected model fit criteria.

Findings

Based on the selected model fit criteria, cash flow per share is shown to produce a better fit than earnings per share, but it cannot be said how much better.

Research limitations/implications

Quarterly CRSP and Compustat data from 2000 to 2006 for 1,902 dividend‐paying firms are analyzed. Future work would need a different methodology to determine how much better cash flow is as a predictor of dividends.

Practical implications

Both earnings per share and cash flow per share are found to be reasonable dividend predictors.

Social implications

Additional insight is provided on modeling factors that contribute to a firm's decision to engage or disengage in a dividend payment policy.

Originality/value

The study described in this paper continues work on predicting dividends per share. Results show cash flow per share is a better predictor than earnings per share. Investors and analysts predict dividends as part of their stock valuation work. This study suggests focusing attention on using cash flow per share as the predictor of dividends.

Details

Managerial Finance, vol. 37 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 27 November 2017

Thaddeus Sim and Ronald H. Wright

Historical stock prices have long been used to evaluate a stock’s future returns as well as the risks associated with those returns. Similarly, historical dividends have been used…

Abstract

Historical stock prices have long been used to evaluate a stock’s future returns as well as the risks associated with those returns. Similarly, historical dividends have been used to evaluate the intrinsic value of a stock using, among other methods, a dividend discount model. In this chapter, we propose an alternate use of the dividend discount model to enable an investor to assess the risks associated with a particular stock based on its dividend history. In traditional applications of the dividend discount model for stock valuation, the value of a stock is the net present value of its future cash dividends. We propose an alternative approach in which we calculate the internal rate of return for a stream of future cash dividends assuming the current stock price. We use a bootstrapping approach to generate a stream of future cash dividends, and use a Monte Carlo simulation approach to run multiple trials of the model. The probability distribution of the internal rates of return obtained from the simulation model provides an investor with an expected percentage return and the standard deviation of the return for the stock. This allows an investor to not only compare the expected internal rates of return for a group of stocks but to also evaluate the associated risks. We illustrate this internal rate of return approach using stocks that make up the Dow Jones Industrial Average.

Details

Growing Presence of Real Options in Global Financial Markets
Type: Book
ISBN: 978-1-78714-838-3

Keywords

Article
Publication date: 20 September 2022

Muneta Yokomatsu, Junko Mochizuki, Julian Joseph, Peter Burek and Taher Kahil

The authors present a dynamic macroeconomic model for assessment of disaster risk reduction (DRR) policies under multiple hazards. The model can be used to analyze and compare…

Abstract

Purpose

The authors present a dynamic macroeconomic model for assessment of disaster risk reduction (DRR) policies under multiple hazards. The model can be used to analyze and compare various potential policies in terms of their economic consequences. The decomposition of these effects into multiple benefits helps policy makers and other stakeholders better understand the ex ante and ex-post advantages of DRR investments. The purpose of this paper is to address these issues.

Design/methodology/approach

A dynamic real business cycle model is at the core of this research. In the model multiple natural hazards modeled stochastically cause shocks to the economy. Economic outcomes, most importantly, output can be assessed before and after disasters and under various DRR policies. The decomposition of benefits aims to quantify the concept of triple dividends.

Findings

In case study applications in Tanzania and Zambia, the authors find that investments into physical infrastructure and risk transfer instruments generate a variety of benefits even in the absence of disaster. A land use restriction with planned relocation for example reduces output in the short run but in the long run increases it. Overall, policy effects of various DRR interventions evolve in a nonmonotonic manner and should be evaluated over a long period of time using dynamic simulation.

Originality/value

The novelty of this study lies in the economic quantification of multiple benefits described in the triple dividends literature. This helps comparing ex ante, ex-post and volatility-related economic effects of multiple disasters and related physical and financial DRR investment options. As observed in the case studies, the model can also identify overlooked temporal heterogeneity of co-benefits of DRR investments.

Details

Disaster Prevention and Management: An International Journal, vol. 32 no. 1
Type: Research Article
ISSN: 0965-3562

Keywords

Article
Publication date: 14 March 2016

H. Kent Baker and Imad Jabbouri

The purpose of this paper is to survey managers of firms listed on the Casablanca Stock Exchange (CSE) to learn their views about the factors influencing dividend policy, dividend

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Abstract

Purpose

The purpose of this paper is to survey managers of firms listed on the Casablanca Stock Exchange (CSE) to learn their views about the factors influencing dividend policy, dividend issues, and explanations for paying dividends. It compares the results to similar dividend surveys in the USA, Canada, Indonesia, and India.

Design/methodology/approach

The study uses a mail survey of CSE listed firms that paid one or more cash dividends to common stock holders between June 1, 2010 and September 30, 2014 as the primary means of collecting data.

Findings

The evidence shows that the most important determinants of a firm’s dividend policy are the level of current earnings, stability of earnings, and needs of current shareholders. A significant correlation exists between the overall rankings of the 25 factors influencing dividend policy between managers of Moroccan firms and those of USA, Canadian, Indonesian, and Indian firms. Managers of Moroccan firms perceive that dividend policy affects firm value. Managers view multiple theories including signaling, agency, catering, and life cycle explanations as credible and contribute in explaining why their firms pay dividends.

Research limitations/implications

Despite a high response rate of almost 55 percent, the number of responses limits the ability to divide the sample firms by size, industry, and other characteristics and to test for statistically significant differences between various groups.

Originality/value

This is the first survey-based research designed to document how Moroccan managers view dividends. Although evidence suggests that some factors are consistently more important than others, no universal set of factors is likely to be applicable to all firms.

Details

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

Keywords

Article
Publication date: 9 March 2015

Subba Reddy Yarram and Brian Dollery

The purpose of this paper is to examine the influence of board structure on dividend policy of Australian corporate firms. It also considers the traditional explanations of…

3956

Abstract

Purpose

The purpose of this paper is to examine the influence of board structure on dividend policy of Australian corporate firms. It also considers the traditional explanations of corporate dividend choice, such as agency cost theory, signalling hypothesis, the life cycle hypothesis along with tax-based explanations of dividend policy.

Design/methodology/approach

The final sample consists of 413 non-financial firms that are part of the All Ordinaries Index. The causal analysis was undertaken in three stages. In the first stage, the authors analyse the likelihood of paying dividends. And classify all firms as either dividend payers or non-payers. The authors then model this binary variable as a function of different sets of variables. In the second stage, the authors analyse the factors determining the magnitude of dividend payout by those firms that have paid a dividend. In contrast, stage three employs all firms – those which did not pay any dividend and those firms which paid a dividend.

Findings

For the study period 2004-2009, this study finds that board independence has a significant positive influence on the dividend payout of Australian firms. This finding is consistent with the “outcome” model of La Porta et al. (2000). This study also finds that size has a significant positive influence on the dividend payout of Australian firms thus providing support for the agency cost view of dividend policy. Similarly, this study also finds support for the signalling hypothesis and the life cycle theory given the significant positive influence of profitability and the significant negative influence of current losses and growth opportunities on the dividend policy of Australian firms.

Research limitations/implications

The findings of the study are robust with to alternative measures of variables employed and are not influenced by the global financial crisis. However, this study did not consider the possible endogenous and multiple relationships between dividends, debt, profitability, cash holdings and governance structures given the limited study period considered.

Practical implications

This study finds that board independence has a significant positive influence on the dividend behaviour of Australian firms. This suggests that dividends and independent directors play complementary governance roles. While dividends provide the monitoring and disciplinary roles, independent directors act as catalysts for enhancing effective board functioning. These findings have implications for corporate governance policies and the payout policies.

Originality/value

Though the governance role of dividends has long been recognized in the literature (Easterbrook, 1984; Jensen, 1986), very few studies analyse the influence of board characteristics on the decision to pay dividends in Australia. Given the distinct Australian setting where the tax imputation system allows companies to pay franked dividends to domestic investors, this study provides evidence on the interaction of corporate and dividend policies. This study finds that dividend polices are influenced by percentage franking of dividends. This study also finds that board independence has a significant positive influence on the dividend policy of Australian firms.

Details

Managerial Finance, vol. 41 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Open Access
Article
Publication date: 30 December 2021

Janaina Muniz, Fernando Galdi and Felipe Storch Damasceno

This study aims to investigate whether there is any influence of the option plan to purchase shares protected from dividends to determine the distribution of dividends in…

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Abstract

Purpose

This study aims to investigate whether there is any influence of the option plan to purchase shares protected from dividends to determine the distribution of dividends in Brazilian companies.

Design/methodology/approach

The authors used a Tobit dynamic and regressive regression model because their sample has an index higher than 30% of companies that do not pay dividends. The sample includes companies that pay dividends or not and pay their executives with executive stock option plans and is composed of 1,990 observations from 356 companies from 2010 to 2016.

Findings

The results indicated that the presence of a dividend protection clause has a positive association with the distribution of dividends. The authors sought to clarify that companies with a stock option plan protected by the distribution of dividends face fewer restrictions on the distribution of dividends. The authors found that most companies still use only stock options to benefit middle-ranking positions and fit the plan in their remuneration policy. The monitoring of these plans lasts an average of seven years, and specific acquisition conditions are not established with their beneficiaries, who must remain in the company and observe performance metrics.

Originality/value

This study is relevant because the relationship between dividends and stock options has not yet been analyzed in Brazil, especially concerning a dividend-protected option plan, which is a relatively recent modality, even unknown to some companies.

Details

RAUSP Management Journal, vol. 57 no. 1
Type: Research Article
ISSN: 2531-0488

Keywords

Article
Publication date: 3 August 2022

Fatima Ruhani and Mohd Zukime Mat Junoh

This study aims to find the relationship of stock market returns and selected financial market variables (market capitalization, earnings per share, price-earnings multiples

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Abstract

Purpose

This study aims to find the relationship of stock market returns and selected financial market variables (market capitalization, earnings per share, price-earnings multiples, dividend yield and trading volume) of Malaysia grounded by the arbitrage pricing theories.

Design/methodology/approach

This study empirically examines the effects of selected financial market variables on stock market returns using 64 companies listed in Malaysia's stock market with data spanning from 2005 to 2018. A systematic empirical study based on the Generalized Method of Moments following Arellano and Bond (1991) has been taken to estimate the effect.

Findings

The regression result of the financial market variables and stock market return shows that, except for trading volume, all selected financial market variables play significant roles in the stock market returns. Furthermore, market capitalization, earnings per share, price-earnings ratio, dividend yield and trading volume have a positive impact on stock market returns.

Research limitations/implications

The outcome of this study can contribute by helping domestic and global investors devise strategies to minimize their risks. Also, policy administrators can use the outcomes of this study to inform the micro- and macro-level policy formulation.

Originality/value

This study will contribute to filling the gap in knowledge concerning the new release of factors affecting the stock market returns of Malaysia.

Details

International Journal of Ethics and Systems, vol. 39 no. 3
Type: Research Article
ISSN: 2514-9369

Keywords

Article
Publication date: 5 October 2023

Abdulaziz Alsultan and Khaled Hussainey

The purpose of this paper is to examine the impact of financial reporting quality (FRQ) on dividend policy. This paper also examines the moderating role of corporate liquidity on…

Abstract

Purpose

The purpose of this paper is to examine the impact of financial reporting quality (FRQ) on dividend policy. This paper also examines the moderating role of corporate liquidity on the FRQ–dividend policy relationship.

Design/methodology/approach

The sample of this paper contains 113 non-financial companies listed on the Saudi Stock Exchange from 2003 to 2019 (1,675 firm-year observations). The authors use OLS regressions to test the hypotheses.

Findings

The authors find a positive relationship between FRQ and dividend policy. They also find that the positive effect of FRQ on dividend policy is not strengthened by the presence of corporate liquidity.

Research limitations/implications

The findings of this study offer implications for stakeholders, including investors and others in Saudi Arabia and other developing countries with comparable business environments. This is because of the significant impact of the dividend policy on a company’s value, as it is a crucial decision that involves distributing substantial amounts of money to shareholders on a regular basis and interacts with other critical decisions within the company. Therefore, the dividend policy has a crucial role in determining the company’s value, which is reflected in its stock prices.

Originality/value

To the best of the authors’ knowledge, this is the first study in Saudi Arabia that provides new empirical evidence on the impact of FRQ on dividend policy and the moderating role of corporate liquidity on this relationship.

Details

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

Keywords

1 – 10 of over 7000