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This chapter analyzes how firms conduct their dividend policy around the world. In principles, firms are free to pay or not to pay dividends and choose dividend levels. However, in some countries, the government requires firms to pay dividends annually in order to protect minority shareholders. Brazil, Chile, Colombia, Greece, and Venezuela are five countries of mandatory dividend payments. In addition, using the Compustat database, we investigate how nonfinancial firms pay dividends over the period 2001–2020. The percentage of payers tends to decrease across four time periods including 2001–2005, 2006–2010, 2011–2015, and 2016–2020. Newly listed firms are less likely to distribute dividends than old firms. “Payers,” “Always payers,” and “Former payers” have positive earnings while “Nonpayers” and “Never payers” experience negative earnings. “Never payers” have the highest level of cash while “Always payers” and “Former payers” have the smallest cash reserves. Moreover, Asia-Pacific has the largest proportion of payers but it tends to decrease. America has the lowest proportion of dividend payers, but it tends to increase. Firms in developing countries are more likely to pay dividends. Both the proportion of payers and the average payout ratio of civil law countries are much higher than those of common law countries. The United States has the lowest percentage of paying firms and dividend payouts. Furthermore, construction and wholesale trade industries have the highest proportions of payers and payout ratios. Mineral and services industries are less likely to pay dividends. Tax rates for dividends and capital gains are diverse across countries.

The purpose of this study tests whether political instability influence financial decision-making behavior of Tunisian-listed firms, in particular dividend payout policy.

This paper uses dividend payout decisions announced over the period 2008–2015 by nonfinancial firms listed on the Tunisian Stock Exchange. A logistic regression is applied to analyze the relationship between political instability and dividend payout decision “changes. These latter are: past non-payers” dividend initiation, past payers' dividend termination, dividend payout “increasing and dividend payout” decreasing. Political instability variables used are as follows: number of changes in government head and dummy variables indicating the changes of ruling party and election year.

This study shows that government head changes are positively related to dividend initiation decisions while changes in ruling party are negatively related to termination dividend decisions except for family controlled ones. These firms are more likely to stop dividend on period of ruling party changes. Moreover, firms become unwilling to increase dividend payment on the period of political instability (changes in ruling party and government head and elections) and become willing to decrease dividend payment only when the government head changes.

The empirical findings contribute to the current debate on the signaling power of dividend policy in emerging market where raising equity capital is difficult and controlling shareholders prefer reinvest benefit to pay dividends. In addition, this study has important implications for regulators and governments struggling to design policies to improve investors' confidence and boost market activity. Indeed, investors may use corporate payout as a signal for better governance.

To the author' best knowledge, this paper is the first to investigate and to compare the effect of three political instability sources; government head changes, changes in ruling party and elections, on dividend payout decision changes. This paper provides evidence that firms facing political unstable environment seek to achieve two goals when they make dividend policy: reducing financial distress probability and attracting minority owners.

The purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.

The authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.

The results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.

It provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.

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.

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

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.

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.

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

This chapter analyzes how the macro-environment determines corporate dividend decisions. First, political factors including political uncertainty, economic policy uncertainty, political corruption, and democracy may have two opposite effects on dividend decisions. For example, firms learn democratic practices to improve their corporate governance, but dividend policy may be the outcome of strong corporate governance or the substitute for poor corporate governance. Second, firms in countries of high national income, low inflation, and highly developed stock markets tend to pay more dividends. A monetary restriction (expansion) reduces (increases) dividend payments, as economic shocks like financial crises and the COVID-19 may negatively affect corporate dividend policy through higher external financial constraint, economic uncertainty, and agency costs. On the other hand, they may positively influence corporate dividend policy through agency costs of debt, shareholders' bird-in-hand motive, substitution of weak corporate governance, and signaling motive. Third, social factors including national culture, religion, and language affect dividend decisions since they govern both managers' and shareholders' views and behaviors. Fourth, firms tend to reduce their dividends when they face stronger pressure to reduce pollution, produce environment-friendly products, or follow a green policy. Finally, firms have high levels of dividends when shareholders are strongly protected by laws. However, firms tend to pay more dividends in countries of weak creditor rights since dividend payments are a substitute for poor legal protection of creditors. Furthermore, corporate dividend policy changes when tax laws change the comparative tax rates on dividends and capital gains.

The purpose of this paper is to empirically analyse the propensity to pay dividends and investigate whether the catering theory is valid in an emerging market.

The sample of this study comprises listed firms on the stock market of Turkey, Borsa Istanbul, with 2,438 observations during the period 1999–2015. In line with previous studies in the literature, appropriate control variables are used that may have an impact on Turkish firms' dividend policy. Control variables are examined in the likelihood of paying dividends by using Fama–Macbeth (1973) style cross-sectional logistic regressions. In addition, the linkage between the dividend premium and the propensity to pay is revealed to test the validity of the catering theory.

The findings of the study confirm the tenets of the catering theory for Turkey. When a positive dividend premium exists, that is when investors demand dividend, firms cater them and distribute dividend; on the contrary, when there is no demand, firms prefer not to pay. The effect of catering incentives on the dividend policy provides useful information for managers because the catering theory claims that investors' demand for dividends has an impact on the valuation of firms.

In the aftermath of the 2001 financial crisis, Turkey implemented far-reaching reforms and policy initiatives to improve the efficiency of capital markets and to overcome the obstacles sourcing from their culture and civil law origin. With the adoption of these major economic and structural reforms, as a civil law origin country, Turkey has managed to ameliorate the protection of investors as in common law countries. Ferris et al. (2009) state that the catering theory is applicable to firms in common law countries but not in civil law countries. In addition, prior research is not so extensive regarding the impact of catering incentives on the dividend policy of firms in emerging markets. The results of the analyses suggest that the catering theory is valid for Turkey as a civil law origin emerging country, and to the best of authors' knowledge, this study is the first to test the catering theory in the Turkish capital markets.

This study aims to survey managers of dividend‐paying 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.

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.

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.

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.

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

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

The manner in which publicly traded companies’ management teams handle their firm’s free cash flows (FCF) has been an issue for many decades, because it is difficult to determine whether these management teams work for their own benefit or for that of their shareholders. Recent financial scandals have heightened mistrust of management. This mistrust, in turn, may have increased the pressure to reduce the portion of FCF left under management’s control. Boards of directors control dividend payout decisions, thus determining the portion of FCF available to corporate management. This paper examines whether the 2002 legal response to corporate financial reporting scandals, which came in the form of many new initiatives and requirements imposed by the Sarbanes–Oxley Act of 2002 (SOX) on all publicly traded firms, was relevant to dividend payouts. This question is investigated by noting that the impact of these new requirements differed among firms. Some firms had already introduced the use of independent directors and fully independent committees prior to SOX making them compulsory in 2002. This paper examines whether these “pre-adopters” experienced less change in their dividend payout policies than those firms that were forced to change the composition of their board and committees.

This investigation examines the effect on dividend payouts for listed firms attributable to the SOX and concurrent changes in stock exchange regulations that compelled increased use of independent directors and fully independent committees. To study the impact of SOX and the associated, required, changes in the composition of boards of directors for many firms, the difference-in-differences methodology is employed to overcome the endogeneity concerns that have consistently challenged prior governance studies. This was accomplished by examining the effects on dividend payouts associated with the exogenously forced addition of independent directors to the boards of publicly listed firms. The results reveal that there is a significant positive relationship between firms that were compelled by law to change their boards and increases in average changes in dividend payouts and percentage changes in dividends paid, when compared to firms that had pre-adopted the Sarbanes–Oxley corporate board composition requirements. A further exploratory analysis showed that the same significant positive relationship is detected for increases in average changes in total dollars distributed, where stock repurchase dollars are combined with dividend payouts. These findings imply that these board composition changes led to decisions that increased dividend payouts in percentage terms, as well as dividend payouts and total dollars distributed in aggregate dollar amount terms.

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.