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Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay? Eugene F. Fama and Kenneth R. French

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Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay? Eugene F. Fama and Kenneth R. French

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Abstract

The percent of firms paying cash dividends falls from 66.5 in 1978 to 20.8 in 1999. The decline is due in part to the changing characteristics of publicly traded firms. Fed by new lists, the population of publicly traded firms tilts increasingly toward small firms with low profitability and strong growth opportunities -- characteristics typical of firms that have never paid dividends. More interesting, we also show that controlling for characteristics, firms become less likely to pay dividends. This lower propensity to pay is at least as important as changing characteristics in the declining incidence of dividend payers. * Graduate School of Business, University of Chicago (Fama) and Sloan School of Management, MIT (French). We acknowledge the comments of John Graham, Douglas Hannah, Anil Kashyap, Tobias Moskowitz, G. William Schwert, Andrei Shleifer, Paul Zarowin, two anonymous (and especially helpful) referees, and seminar participants at Harvard University, the University of Chica...

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... Empirically, previous evidence has shown that the size of a firm, its profitability and growth are among the leading factors that determine firms' propensity to pay dividends (Fama and French, 2001;DeAngelo, DeAngelo and Skinner, 2004;Fatemi and Bildik, 2012) and firms corporate governance (Francis et al., 2011;Jiraporn, Kim and Kim, 2011;Boumosleh and Cline, 2015). Regarding the board diversity for example, the relationship between female director and dividend policy is still an open question, only a handful studies attempted to examine this relationship using data from the US (Byoun, Chang and Kim, 2016) China (McGuinness, Lam and Vieito, 2015) Spain (Pucheta-Martínez and Bel-Oms, 2016) international study (Saeed and Sameer, 2017) and Nigeria (Idris, Ishak and Hassan, 2017). ...
... The study also contributes further by providing additional evidence on the influence of female director(s) on dividend policy among profitable firms. This is because prior evidence on propensity to pay dividends (Fama and French, 2001;Fatemi and Bildik, 2012) argued that firms' profitability is an important factor in ascertaining whether a firm pays a dividend or otherwise. The study also shades more insight on the compliance level of firms in Nigeria with the 2011 code of Corporate Governance in relation to board diversity. ...
... Prior studies have documented that dividend payout may be an indication that firm is profitable and doing well (Fama and French, 2001;Ferris, Sen and Yui, 2006;Adjaoud and Ben-Amar, 2010;Fatemi and Bildik, 2012;Byoun, Chang and Kim, 2016). It is likely that when profitable firms fail to disgorge cash to their shareholders, it will be exposed to a greater risk of managerial opportunism, perquisite consumption and empire building. ...
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Abstact This study explores how female director(s) affect the decision to pay dividend in the sub-Saharan Africa. The study specifically employs non-financial firms listed on the Nigerian Stock Exchange Market from 2009-2015 and logit regression as the technique for data analysis. The independent variable of interest in the study is female director. Consistent with the hypothesis, the study found strong association that firms with at least one female director on board are more likely to affect the payment of dividends. The findings subsist after the commencement of the 2011 CCG and when firms with negative earnings were excluded from the main sample. Furthermore, the results do not change when the model was re-estimated using an alternative measure of female director as well as using OLS regression.
... Consequently, firms prefer internal funds to external funds and thus they tend to save retained earnings for their investment projects instead of distributing dividends. There are many prior studies that document empirical supporting evidence for the pecking order theory (Aivazian et al., 2003;Al Shabibi & Ramesh, 2011;Al-Malkawi, 2007;Al-Najjar & Hussainey, 2009;Cao et al., 2017;Denis & Osobov, 2008;Fama & French, 2001;Holder et al., 1998;Jabbouri, 2016;Jensen et al., 1992;Jiraporn et al., 2011;Kowalewski et al., 2007;Thanatawee, 2011;Tran et al., 2017). ...
... ROA t is firm profitability measured by return on assets ratio in year t. When firms are more profitable, they tend to pay more dividend (Fama & French, 2001). CAS t is cash holding calculated by total cash and cash equivalents deflated by total assets in year t. ...
... A higher M2 growth rate leads to a decrease in the cost of external financing; however, firms with more cash reserves are more flexible in their investment decisions and thus their dividend policy is less influenced by a monetary expansion. Besides, consistent with Denis and Osobov (2008), Fama and French (2001), and Tran et al. (2017), we find that firm profitability and firm growth affects dividend policy positively and negatively respectively. Firms with higher growth rate have more investment opportunities; therefore, they need to restrict dividends in order to avoid external financing as suggested by the pecking order theory (Myers & Majluf, 1984). ...
... Therefore, the pecking order hypothesis provides a plausible explanation for the relationship between profitability and dividends. Prominent scholars such Fama and French (2001) interpret their results of the positive impact of profitability on the likelihood to pay dividends for US firms as consistent with the pecking order hypothesis (see also Fama and French, 2002). ...
... Barclay, Smith, and Watts (1995) document that, investment opportunities are significant determinant of corporate dividend policy. Fama and French (2001) affirm that investment opportunities influenced dividend decision. They find that firms with better growth and investments opportunities have lower payouts. ...
... This result is in line with Amina (2015) and Al-Ajmi and Abo Husain (2011) who arrive at a similar conclusion for listed firms in Saudi stock market (see also Alzomaia and Al-Khadhiri, 2013). Our findings are also consistent with the earlier findings of Fama and French (2001) for US, Al-Malkawi (2008) for Jordan, Al-Najjar and Hussainey (2009) for UK and Al-Kuwari (2009) for GCC countries. The significant positive relationship between profitability and dividends is generally consistent with the pecking order theory and signaling hypothesis. ...
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This paper draws on the author’s previously published works. The purpose of this study is to examine the effect of ownership structure and firm-specific factors on the payout policy of firms listed on the largest stock market in the Gulf Cooperation Council (GCC) region namely the Saudi Stock Exchange (SSE). The paper uses a balanced panel dataset of 69 nonfinancial companies (552 firm-year observations) and employs the random effects Tobit specification. The results show that government, institutional and family ownership positively influence dividend payments in Saudi Arabia. Furthermore, dividend payments are positively associated with firm-specific factors such as profitability, firm size and firm maturity but negatively related to business risk and leverage. The findings are consistent with the agency costs and reputation hypotheses. The paper provides some practical implications for the Capital Market Authority of Saudi Arabia (CMA), corporations and investors.
... This study focuses on the theories of factors influencing corporate dividend policy and determines how these factors influence the dividend payment decisions of joint stock companies that be listed on the stock market of Vietnam. There have been many studies on the factors influencing the dividend policy in the world, such as Rozeff (1982), Fama & French (2001), Liu & Hu, (2005), DeAngelo, DeAngelo, & Stulz (2006), Nizar Al-Malkawi (2007), Ahmed & Javid (2008), Gill, Biger, & Tibrewala (2010). These studies have some similar results but there are also inconsistent results that need to be studied. ...
... When company has higher debt ratio, which means that the greater the financial risk so that company usually pays lower dividends. Fama & French (2001) used the logit model with the dependent variable take value 1 if companies pay dividends regularly for ordinary shares every years and value 0 if elsewhere. They point out that the dividends payout ability has positive correlation with firm size, profitability and has a negative relationship with growth opportunities. ...
... They point out that the dividends payout ability has positive correlation with firm size, profitability and has a negative relationship with growth opportunities. DeAngelo et al., (2006) extend the analysis of Fama & French (2001). They include the life cycle measurement of a company and found out that the dividend payout ratio has a positive correlation with the rate of return on book value of common equity and they argue that the rate of return on book value of common equity is often the most important economic indicator influencing to the trend of dividends payout. ...
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The article explores the factors affecting company’s dividend policy such as profitability, firm size, financial leverage and growth rate. Data is collected from enterprises listed on the Vietnam securities market in the period of 2006 - 2017 with 2,150 observations. Using the Generalized Least Squares (GLS), the authors have identified two factors that have a positive and significant effect: (i) return on total assets and (ii) firm size. At the same time, research results also show a negative impact of enterprise’s revenue growth rate on the dividend payment ratio. In addition, financial leverage has no impact on company’s dividend policy.
... Gugler and Yurtoglu (2003) have shown, that among German firms, the size of the firm negatively affects dividend payouts. In contrast, Fama and French (2001) have found that, although firms in the United States of America in the 1970s and 1980s were overall less likely to pay dividends, smaller firms were less inclined to pay dividends. Similar results, regarding the effect of firm size and dividend policy, can be found in Al-Kuwari (2009) who sampled firms from Kuwait, Saudi Arabia, Oman, Qatar and Bahrain. ...
... Growth can be defined as expected investment opportunities that can be measured as a ratio of market to book value of assets or market to book value of equity. Fama and French (2001) found this influence of growth on dividend policies to be negative, in other words to more the firm has investment opportunities it is statistically less likely to pay dividends. Aivazian, Booth and Cleary (2003) have found that this effect is of the opposite sign. ...
... Dividends are paid, mostly, from retained earnings so the more retained earnings (more profitable) a firm has the higher their potential is to payout dividends. There are numerous papers that found empirical evidence for this claim (e. g. Fama & French, 2001;Aivazian, Booth & Cleary, 2003) ...
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There are two competing hypothesizes on whether firms that are part of a business group should pay higher or lower dividends. Under one hypothesis, that can have different theoretical assumptions, firms that are a part of a business group should pay higher dividends. In contrast, if the pecking order hypothesis holds, firms that operate within a business group should pay lower dividends. The purpose of this paper is to examine the effect of group affiliation of Croatian firms, which are listed on the Zagreb Stock Exchange, on their propensity to pay dividends. Two panel data models were used in line with recent literature and the results of the study show some evidence that the pecking order theory was followed by Croatian firms. From this result the conclusion is that Croatian firms are more likely to pay dividends if they are not part of a business group.
... Thus, firms in their mature stage and with slower growth opportunity are likely to pay higher dividends (Baker and Kapoor, 2015). A large proportion of no dividend payers are small firms who have a tendency to invest relatively more capital for research and design rather than pay out dividends (Fama and French, 2001). They argued that firms that have better investment opportunities tend to pay less or are more likely to pay nothing. ...
... Under the life-cycle theory, dividend payouts have a positive relationship with firm size because the cash flows of big and mature firms are from their earnings not investors' contribution although younger and smaller firms work in contrast to this. Fama and French (2001) in research on US firms indicated that firms paying less or nothing are small. The agency cost theory exposes the same relationship between firm size and dividend payouts. ...
... Many studies reinforce that profitability is one of the most important elements to managers for deciding on dividend policy (Fama and French, 2001;Chay and Suh, 2009;Baker and Jabbouri, 2016). This positive relationship is consistent with the signalling theory that dividends provide signals about a firm's future prospects when current earnings are known. ...
... • following Fama and French (2001), and Fairchild, Guney, and Thanatawee (2014), this study uses price to book value (PBV) to confirm the firm maturity in relationship with investment opportunities. This study calculates PBV as ratio of share market price over share book value; ...
... The case for controlling shareholders (CS) shows that dividend policy on this shareholders has tendency to follow the setting of life cycle theory, as the result of PBV CS ⋅ have supported for it. This finding is consistent with Lang and Litzenberger (1989), Fama and French (2001), Grullon, Michaely, and Swaminathan (2002), and Fairchild, Guney, and Thanatawee (2014), which make the study accept H1. Whereas the result of LTDAR CS ⋅ shows that dividend policy on controlling shareholders (CS) is inconsistent with setting of free cash flow theory, which means that the study rejects H2. ...
... Those results imply that circumstances of dividend policy on this area have its own uniqueness, because it seems that any investment opportu-nities as suggested by Fama and French (2001) now has become a consequence of controlling shareholders (CS). Under this circumstance, the case on controlling shareholders (CS) may follow the finding of Wei, Wu, Li, and Chen (2011) in assumption when this ownership normally has heterogeneous preferences. ...
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The purpose of this study is to examine dividend policy on both the controlling and non-controlling shareholders based on assumptions according to theories of life cycle, and free cash flow.The sample for this study is 241 listed firm in Indonesia Stock Exchange during the period from 2010 to 2015. This study divides the sample based on quartiles and analyzes it by conducting logistic regression with significant rate at 0.05. This study provides the evidences that: (1) firms as dividend payers tend not distribute their dividend for controlling shareholders and non-controlling shareholders while the composition for both shareholders are almost equal; (2) firms as dividend payers also have tendency not to distribute dividend on controlling shareholders when this shareholders have largest percentage of ownership; and (3) firms as dividend payers tend not distribute dividend on non-controlling shareholders while they have lowest retained earnings.The findings imply that life cycle theory and free cash flow theory can explain the behavior of dividending policy on controlling shareholders and non-controlling shareholders depend on their circumstances.The study uses alternative measurement for non-controlling shareholders as this variable together with controlling shareholders are moderating the other independent variables for testing the model of dividend policy.
... An alternative view of dividends, proposed by DeAngelo and DeAngelo (2006), is that optimal payout policy is driven by the need to distribute the firm's free cash flow. They propose a lifecycle theory that combines elements of Jensen's (1986) agency theory with evolution in the firm's investment opportunity set of the type discussed in Fama and French (2001) and Grullon, Michaely, and Swaminathan (2002). In this theory, firms optimally alter dividends through time in response to the evolution of their opportunity set. ...
... Several studies have examined the factors which seem to influence dividend payout policy; DeAngelo, DeAngelo, and Stulz (2006) find that the propensity to pay dividends is positively related to the ratio of retained earnings to total equity, their proxy for the firm's life-cycle stage. A further wrinkle in the 'dividend puzzle' literature was presented in Fama and French (2001) which reported a substantial decline in the proportion of firms paying dividends in the U.S. Although this decline is due in part to changes in the characteristics of firms that are publicly traded (i.e. more firms exhibit characteristics similar to those of non-dividend-paying firms), Fama and French (2001) nonetheless report that once they control for these characteristics, they still find a significant decline in the residual propensity to pay dividends. ...
... A further wrinkle in the 'dividend puzzle' literature was presented in Fama and French (2001) which reported a substantial decline in the proportion of firms paying dividends in the U.S. Although this decline is due in part to changes in the characteristics of firms that are publicly traded (i.e. more firms exhibit characteristics similar to those of non-dividend-paying firms), Fama and French (2001) nonetheless report that once they control for these characteristics, they still find a significant decline in the residual propensity to pay dividends. Denis andOsobov, (2007) andGul, Mughal, Shabir andBukhari (2012) examined the factors which seem to influence dividend payout policy; the findings of the former supports agency costbased lifecycle theories while the later found a positive correlation between profitability, firm size, growth and dividend yield. ...
... The discussion on the 'dividend puzzle' in literature took the form of a 'disappearing dividend puzzle', which is still an important problem linked to the following issues: the trend to lower transaction costs for stock sales, the growing role of stock options for managers who prefer capital gains to dividends, the improvement in corporate governance technologies as compared with the lower value of the benefit of dividend payments in the management of agency problems between stockholders and managers (Fama & French, 2001), and the level of earnings that affects managerial decisions on payout policy (Shapiro & Zhuang, 2015). This approach builds on theories which seek to explain managerial motivation in a situation of a decreasing relevance of agency costs (Bahreini & Adaoglu, 2018). ...
... The level of profitability is a determining factor in dividend payouts. High ROE and ROA tend to correspond to high dividend payouts (Benavides, Berggrun, & Perafan, 2016;DeAngelo, DeAngelo, & Skinner, 1996;DeAngelo et al., 2006;Denis & Osobov, 2008;Fama & French, 2001). The results of the study by Ka zmierska-J o zwiak (2015) indicate that there is a significant but negative relationship between profitability (ROE) and the dividend payout ratio. ...
... According to Authors, the size of a firm has a significant impact on the relation of retained earnings to total equity. This correlation was also evidenced in Fama and French's study (Fama & French, 2001). In this study, we hypothesise that larger food sector companies are more likely to pay dividends. ...
Article
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The paper examines the factors influencing dividend payout decisions. Our analysis is based on unbalanced panel data with 799 observations of companies from 15 countries over a period of 14 years. The study develops eight research hypotheses and uses a modelling approach based on the random effects panel probit model. An important conclusion reached in our study is that a company’s financial situation in preceding year influences the dividend payout decision. In addition, the key significant determinants of dividend payout decision in the period covered by our study include free cash flow, growth, liquidity, profitability and size. These important research results are confirmed by other studies in the field. They are therefore essential for determining dividend policies. Individual effects across investigated enterprises also played an important role in the dividend policy.
... The study contributes in the following ways: First, most previous studies have considered whether a firm pays dividends or not as a proxy for likelihood to pay dividends. However, this study uses Fama and French (2001) methodology to model the likelihood of dividend payout. Second, previous studies have focused more on outside directors (Hu & Kumar, 2004;Sharma, 2011) or firm characteristics (Abdulkadir et al., 2016) however, this study examines characteristics of the directors including gender and expertise who serve on the board. ...
... To examine the effect of board attributes on the likelihood to pay dividends, the study constructed the dependent variable likelihood of dividends payments (LKPD) using the following steps. First, the study identifies three firm characteristics that were previously used in the literature of propensity to pay dividends (Fama & French, 2001;Fatemi & Bildik, 2012;Ferris, Sen, & Yui, 2006). These characteristics include return on assets, firm size, growth opportunities. ...
... This means larger firms have a higher likelihood to pay dividends than smaller firms in the capital market. This evidence supported the findings of Fama and French (2001) and Fatemi and Bildik (2012) that larger firms are more likely to pay dividends. Consistent with the previous evidence, the results presented in Table 3 also reveal a negative and statistically significant between leverage and likely to pay dividend indicating that debt is a constrain on paying dividends. ...
... Among the factors, the following are considered to be the most important: profitability, size, investment opportunities and debt level (e.g. : Fama & French, 2001;Rozeff, 1982;DeAngelo, DeAngelo, Stulz, 2006;Denis & Osobov, 2008). Despite the fact that influence of individual factors on decisions on dividend payment is different in various countries, research results allow us to state that profitability and size usually have a positive influence on dividend decisions, while investment opportunities and debt level negatively influence dividend payment level. ...
... 2) Firm size (FS) -According to the maturity theory (Fama & French, 2001;Grullon, Michaely, Swaminathan, 2002), companies paying dividends are usually big, mature and with small investment abilities. In contrast to these companies, small, young firms with high development possibilities rarely pay dividends. ...
Article
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The article analyses the impact of foreign investors, who were the majority shareholders of companies on the Warsaw Stock Exchange, on dividend policy of these companies in the years 2004-2014. An evaluation of the direction and strength of the influence of the analysed group of investors, using 2 models, was conducted applying logistic regression. The first – dividend payout policy based on the binary logit model - showed that along with a growing share of a foreign investor in a given company the probability of dividend payment by the company increased significantly. The second – dividend level change model based on the multinominal logit method - showed, however, that with an increasing share of foreign investors the probability that a given company will reduce the paid dividend level was enhanced significantly. Additionally, it should be stated that these results, irrespective of the model used, were to a very large extent in line with conclusions of the pecking order theory. However, in the case of signaling, free cash flow and maturity theories, these results only to a small extent provided evidence supporting these theories.
... To reduce concerns over endogeneity, we lag disclosure quality by one period (t-1). Based on the existing literature concerning the determinants of dividends (for example : Fama & French, 2001;Liu, 2002;Lin et al., 2014), we include the following firm-level control variables that have an impact on the dividend payout: (1) Similar to the measurement used by Adam and Goyal (2002), the current study uses the market-to-book-asset ratio (MB) as a proxy for the firm's investment opportunity. Whilst growth opportunity is measured by the ratio of market value of equity plus the book value of debt to the book value of assets. ...
... Further analysis of Model 1 and Model 2 indicates that growth opportunity (CAPEX) and profitability (ROE) do not seem to have a significant impact on dividends. In contrast to previous literature (Fama & French, 2001;Luo & Plumlee, 2008;Al-Ajmi & Abo Hussain, 2011), the results in this study indicate that firms in Saudi Arabia initiate dividend payouts irrespective of their growth opportunity and level of profitability. Notes. ...
Article
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This study examines how disclosure quality influences the dividend payouts of firms, and provides further evidence concerning the outcome hypothesis and substitution hypothesis. Using a sample of non-financial Saudi Arabian listed firms during 2012-2014, our results provide support for the substitution hypothesis in which outsiders demand higher dividends in a low-quality disclosure environment as a “substitute” for opacity. Further analysis shows that managers pay a higher dividend in an opaque environment not only to establish a reputation among outside capital suppliers but also because they have to disgorge excess cash to circumvent free cash flow problems.
... Instead, some imperfections exist in the market due to the presence of taxation, information asymmetry, transaction costs, agency costs, bankruptcy costs, and so on. Therefore, many theories-such as signalling theory (Bhattacharya, 1979), life cycle theory (Fama & French, 2001) tax preference and clientele effects theory (Elton & Gruber, 1970;Miller & Scholes, 1978), agency theory (Jensen & Meckling, 1976), and birdin-hand theory (Gordon, 1963;Walter, 1963) have been evolved to explain these imperfections. Bhattacharya (1979) in his explanation in favour of signalling hypothesis asserts that dividend payment is a signal of a firm's future prospects that helps eliminating information asymmetry between management and shareholders. ...
... Bhattacharya (1979) in his explanation in favour of signalling hypothesis asserts that dividend payment is a signal of a firm's future prospects that helps eliminating information asymmetry between management and shareholders. Life cycle theory (Fama & French, 2001) argues that dividend payment behaviour of a firm follows the firm's life cycle approach as such that the firm pays virtually no dividend at the early stage of its life cycle; pays less dividend at its growth stage; and finally pays maximum dividend when the life cycle approaches to the maturity. Firm's management demonstrates such dividend payment behaviour based on its assessment of the significance of market imperfections likely to exist due to information asymmetry, transaction costs, agency costs, tax preference and others. ...
Article
This paper analyses the views of managers of banking firms in Nepal to understand their perceptions towards dividend theories and factors affecting dividend policy. Based on a mail survey among 79 directors and CEOs of banking firms in Nepal during the months January to March 2022, the study suggests that managers prefer at most the combination of cash and stock dividend to be distributed to their shareholders. With respect to their preferences towards given form of dividend payments, managers claim that they generally go with shareholders’ preferences in deciding the forms of dividend payments. The study results further demonstrate strong support for signalling and bird-in-hand explanations of dividend theories. Among the 14 factors affecting dividend policy, the study reveals that firm’s level of current earnings, including the pattern of past earnings and stability of earnings are important factors in determining dividend policy of banking firms in Nepal. The survey evidence documented in this study further verifies the significance of signalling hypothesis in recent period in case of Nepal to explain why managers prefer to pay dividend. The main implication of the findings of this study is that it explores, in the changing context of meeting regulatory capital requirements, how the banking managers perceive about dividend policy of Nepalese banking firms. The finding of the study is primarily useful to investors seeking for investment in dividend paying banking firms in Nepal
... Theoretically, the process of firm insiders to convey the information to stockholders called signaling (Ross, 1977;Connelly et al., 2011). Some of the important informations are earned/contributed capital mix which signals firms maturity (DeAngelo et al., 2006;Fairchild et al., 2014) and market to book which signals firm growth opportunities (Fama and French, 2001;Lewis et al., 2003). Most of studies such as Fama and French (2001), Fairchild et al. (2014), and Budiarso et al. (2019) show that those ratios commonly have close relationship with dividend policy, but it is very rare for those ratios to be analyzed in relationship with risk. ...
... Some of the important informations are earned/contributed capital mix which signals firms maturity (DeAngelo et al., 2006;Fairchild et al., 2014) and market to book which signals firm growth opportunities (Fama and French, 2001;Lewis et al., 2003). Most of studies such as Fama and French (2001), Fairchild et al. (2014), and Budiarso et al. (2019) show that those ratios commonly have close relationship with dividend policy, but it is very rare for those ratios to be analyzed in relationship with risk. Furthermore, some studies such as Fama and French (1992), and Fama and French (1993) show that risk is the most determinant to affect the returns. ...
Article
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The objective of this study is to examine the interaction between firm maturity and firm growth opportunities over risk and its impact on returns. This study uses 135 firms listed in Indonesia Stock Exchange during 2010 to 2016 as sample which gives 945 as total observed data. This study conducts path analysis in term for hypothesis testing and finds that firm maturity has significant role to increase the risk which gives impact on increasing the returns. In context of Indonesian firms, the findings imply that mature firms will have higher risk and higher returns.
... Previous studies on dividend policy (Fama & French, 2001;Lintner, 1956;Baker et al.,1985;Alli et al., 1993 Musiega et al., 2013) have highlighted various determinants of dividend yield and payout that include investment opportunities, company size, company growth, profitability and liquidity. However, controversies emerge in the directions of the relationship between these factors and dividend policy. ...
... However, the same ratio tends to have a strong negative effect on dividend yield when using ROE as a measure of profitability but excluding investment opportunity in the regression model. The negative effect of market to book ratio, which is also a measure of growth opportunities, on dividend yield is consistent with a number of previous studies including Abor & Bopkin (2010) Baker et al. (2012) and Fama & French (2001). Intuitively, companies with greater growth opportunities could profitably invest the free cash flow in projects that take advantage of these growth opportunities. ...
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This paper examines the determinants of dividend policy of manufacturing companies listed on the Dar es Salaam Stock Exchange in Tanzania. Two measures of dividend policy namely, dividend yield and dividend payout are examined over the 2008-2016 period. In addition, three proxies of profitability namely return on assets ratio, return on equity ratio, and the ratio of earnings per share are applied in separate specifications. Similarly, investment opportunities are measured using the ratio of retained earnings to total assets and market to book value ratio. Other explanatory variables are liquidity, business risk, firm size, firm growth and gearing ratio. For inferential analysis, 12 regression models are specified and estimated depending on the measurements of dividend policy, profitability, and collinearity between retained earnings to total assets and market to book value ratios. Empirical results show that the determinants of dividend policy vary across the proxies of dividend policy, profitability and investment opportunities. On one hand, return on equity, retained earnings to total assets ratio, market to book value ratio, business risk and size of the firms tend to have a significant effect on dividend yield. On the other hand, liquidity, business risk, and retained earnings to total assets ratio seem to affect dividend payout. Meanwhile, return on asset ratio tends to have an effect on both dividend yield and dividend payout when excluding liquidity in the regression models. Overall, dividend yield as a measure of dividend policy and return on equity as measure of profitability provide better results. The main implication of these results is that managers should consider the major determinants of dividend yield ratio while formulating the appropriate dividend policy for a firm.
... Dalam penelitian ini hipotesis H4a, dan H4d diterima, dengan nilai signifikan lebih kecil dari 0,05 yaitu sebesar 0,032 pada tahap start-up, dan 0,000 pada keseluruhan, namun H4, H4b, H4c ditolak karena nilai sig lebih besar dari 0,05, yaitu sebesar 0, 788 untuk tahap growth ; 0,256 untuk tahap mature; 0,065 untuk tahap shake-out. Oleh sebab itu H4a dan H4d sesuai dengan penelitian Simanjuntak & Kiswanto, (2015) dan Fama & French, (2001), yang menyatakan bahwa dalam membagi dividen, perusahaan juga melihat nilai ROE, jika nilai ROE tinggi biasanya perusahaan akan membagikan dividen. Dalam penelitian ini hipotesis 5, 5a, 5b, 5c, 5d ditolak karena nilai sig SIZE lebih besar dari 0,05. ...
Article
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The purpose of this research is to know the influence of RETE, CASHTA, TETA, ROE, SIZE, LEVERAGE on the dividend policy on the company lifecycle of 2014-2018 listed on the Indonesia Stock Exchange (IDX). The population of this research was an IDX registered manufacturing company in 2014-2018, with a total population of 170 companies. The sampling technique used in this research is purposive sampling, and 76 companies were obfained. The independent variables of this research are RETE, CASHTA, TETA, ROE, SIZE, LEVERAGE; While the dependent variable of this research is a dividend policy. The results of this research show that RETE, CASHTA, TETA, SIZE, LEVERAGE are not significant to the dividend policy on the company's lifecycle. In general, there is a variable ROE that has a significant influence on the dividend policy. Further, if analysis is conducted on each company's lifecycle, the ROE has a significant effect on the dividend policy at the start-up stage.
... Enterprises that pay high dividends increase their value more than enterprises paying low dividends. Shareholders in order to increase their value reinvest dividends received from the enterprise (Baker et al. 2001;Fama and French 2001;Porta et al. 1998). Lotto (2013) indicates that there is a link between corporate dividend policy and corporate control structures. ...
... The natural logarithm of total assets of the firm i during the year t. studies have shown that size is among the determinants of dividend policy (Allen & Michaely, 2003;Aivazian et al., 2003), and previous studies suggest that larger firms pay higher dividends (Fama & French, 2001;Denis & Osobov, 2008). According to Scott (1977), firms with a high proportion of tangible assets are more leveraged, which will in turn positively or negatively affect dividend payments, depending on whether there is a substitution or a complementary relationship between debt and dividends. ...
Article
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Agency cost is an internal cost which arises between management (agent) and shareholder (principal), because of the diverging interest of the two parties. Dividend payments are often employed to mitigate this cost. Studies have examined the effect of dividend payouts on agency costs documenting mixed findings. However, the literature on the reverse effect of agency costs on dividend payouts is still nascent. The main objective of the study is to examine the effect of agency cost on dividend payout of listed manufacturing firms in Nigeria. The study used a panel research design. The population of the study comprised listed manufacturing firms but, delimited to firms in conglomerate and consumer goods sectors of the Nigerian Stock Exchange. Data for the study were collected from yearly financial statements of the selected firms. The hypotheses were tested using pooled OLS Regression. The dependent variable of the study was dividend payout, while assets to sales ratio, leverage, and free cash flow were proxies of agency cost. Firm size and profitability measures (ROA and ROE) were used as control variables in the study. The study found a significant and positive effect of assets to sales ratio and free cash flow, and a significant and negative effect of leverage on dividend payout. The study recommended amongst others that, managers should consider the implication of agency costs in the design and implementation of a dividend policy.
... Given raising capital is costly, optimal dividend policy is dominated by 'retention of cash' in order to fund growth. Fama and French (2001) found US dividend-paying firms were significantly larger, more profitable, with fewer growth options than firms that did't pay dividends. Empirical results in DeAngelo et al. (2004) identified dividends are primarily the domain of large mature firms, which is inconsistent with theories of 'information content' 16 . ...
Research
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Restructuring of Australia’s electricity supply industry during the 1990s and the string of M&A events that followed led to two clear lines of business emerging, i). regulated utilities (i.e. poles & wires), and ii). merchant utilities (i.e. competitive generation and retail). There are dozens of utility businesses in Australia but only four are listed on the Australian Stock Exchange – two regulated and two merchant. Operating in parallel for most of the past two decades, the two utility segments followed very different earnings trajectories over recent years. Unlike merchant firms, regulated utilities avoided the large swings in dividends which characterised merchant firms as Australia’s climate change policy conditions began to tighten. In turn, the comparative stability of regulated utility dividends in the context of a low interest rate environment led to soaring valuations, culminating in simultaneous takeover events. Co-incident delisting of the regulated utilities marks the end of our ability to observe continuous market valuations, and real capital market reactions to changes in network regulation. In this article, the dividend policy and market valuations of the listed regulated utilities are analysed in the context of a falling interest rate environment. Results are consistent with Grullon & Michaely’s lifecycle theory of dividend policy – it would seem the stability provided by Australia’s regulatory framework made the network utilities, rightly or wrongly, a proxy for bond investors in a falling-rate environment. For merchant utilities, the pattern of dividends and earnings are consistent with information content theory. But their valuations have been adversely impacted by a tightening of Australian climate change policies – ironically, this also being the likely trigger of regulated utility takeover events.
... The inclusion of the control variables follows the prior literature on the determinants of dividend policy. The findings of Fama and French (2001) indicate that large firms are more likely to pay dividends but contrary in the case of the firms with more investments facing great growth opportunities (also see in DeAngelo et al., 2006). Leverage is shown to be negatively associated with future dividend policy (Brockman and Unlu, 2009). ...
Article
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This study analyzes the influence of behavioral foundation factors and corporate strategic behavior on the formulation of corporate dividend policy. We use the Logit model and the OLS model for estimating the empirical model. The year- and industry-fixed effects are controlled in the model. We consider the behavioral foundations in three dimensions-ambiguity aversions, risk aversion, and loss aversion. The results show firms with high ambiguity or high risk infrequently pay dividends but firms with loss-averse behavior tend to pay dividends. This paper also provides evidence that a firms’ business strategy influences its corporate dividend policy. Aggressive firms inhibit the payout of dividends. In additional tests, we find the results remain unchanged in those firms with high corporate governance or high growth opportunities.
... The second variable is SIZE. Fama and French (2001) as well as Grullon, Michaely and Swaminathan (2002) argued that companies paying dividends are mainly large, mature and possess small investment opportunities. In contrast to these companies, small, young companies with high growth opportunities rarely pay dividends. ...
Article
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In the paper, we examine the impact of ownership structure on dividend policy and shareholder value in non-financial companies from construction sector in Poland. More specifically, by distinguishing between financial and non-financial shareholders, we verify the involvement of financial institutions in company ownership and how it translates into changes in major dividend and shareholder value indicators. Our results show that the presence of financial investors in the ownership structure has a positive impact on probability that the company will pay out dividends, what is symptomatic for financialisation. However, there is not enough evidence to support similar conclusion regarding shareholder value creation.
... At the same time, the accounting metrics, which above studies have not considered, viz., cost of capital of the firm and the capital structure decision, have been found to significantly impact the dividend policy (Azhagaiah, 2008) along with the profitability of the firm. Similarly, Fama and French (2001), for instance, found in their empirical work a sharp decline in the dividend pay-outs by publicly traded firms in the US over the period of 25 years studied by them. Empirical findings of Farsio et al. (2004) suggest that the relationship between the dividends of the companies and their earnings hold good only in the short period and, in the long run, the relationship is not significant. ...
Article
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Determinants of dividend policy have been a topic of debate in the academic literature for several decades, but the studies have not been able to give a concluding result on the topic. Existing literature reveals that one of the most challenging decisions, dividend payout, is affected by multiple determinants thereby impacting the value of stock, among which proficatibility, capital structure and level of cash flows are identified to be significant factors. The aim of this study is to evaluate empirically the determinants of dividend payout among the companies in the Indian auto components sector which are listed in major Indian bourses. This paper constitutes a modest attempt to explore the relationship between dividend policy (dividend pay-out ratio) of the companies and the variables representing profitability, capital structure, investments, liquidity and cash flows. The other salient feature of the study is that it examines casual relationship of financial performance, operational efficiencies and investment strategies on decision of paying the dividend. ANOVA, correlation analysis and regression analysis have been used to explore the relationship between the identified variables. The study finds that the dividend policy of the companies in the Indian auto components sector is largely influenced by the operating profit, cash from operations, proportion of cash from operations used for financing the investment activities and the proportion of equity in the capital structure of the companies. The study addresses the Indian auto components sector, which is not researched much, and suggests rejuvenation in dividend policy after accounting a derived variable of cash flow to capital expenditure, as identified relevant to the group of auto manufacturers selected for the study.
... 26.98% in 2010 and then rebounded to 39.09% in 2014. This observation may seem incon- sistent with studies that suggest the eclipse of dividend payouts ( DeAngelo et al. 2004;Denis and Osobov 2005;Fama and French 2001;Fatemi and Bildik 2012;Ferris, Sen, and Yui 2006;Siegel 2002;Wood 2001), although they are consistent with the evidence for large caps (Amenta 2013). We believe the main reason for the enduring attractiveness of dividends in Poland is the low, yet rising, popularity of stock buybacks. ...
Article
Using 3,297 observations covering 516 nonfinancial companies listed in 2005–2014 on the Warsaw Stock Exchange, we apply a principal–principal agency framework to construct a panel model on the magnitude of ownership concentration and collusion among blockholders to reduce dividend payouts. We show that ownership concentration by the largest and second-largest shareholders, as well as by the state, lowers dividend payouts, while stakes held by industrial concerns and financial institutions constrain the expropriation of minority shareholders. Our results demonstrate important implications for investors and others concerned with increasing transparency and attracting new capital.
... Several studies, including Myers [20], Fama and French [35], and Ibbotson and Chen [18], find a negative relationship between dividend payouts and earnings growth rates. Farsio et al. [36] show that firms have lower earnings in the long-run when they pay a higher level of dividends without any consideration of their investment expenditures. ...
Article
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This study examines the link between foreign ownership and firm value in the context of dividend payouts and long-term firm growth. Consistent with prior studies, we find that foreign ownership is positively related to firm value. Next, we find that changes in foreign ownership are negatively related to changes in agency costs, which is linked to the improvement of future firm profitability. We also find a positive relationship between foreign ownership and dividend payouts. We further find that dividend payouts are negatively related to 3-year-ahead and 5-year-ahead sales (or earnings) growth as a proxy for long-term firm growth. However, for firms with high foreign ownership, we find a positive relationship between dividend payouts and long-term firm growth. These findings indicate that foreign ownership has a moderating effect on dividend payouts and long-term firm growth. Overall, our results suggest that foreign investors are expected to provide managers with an incentive to pursue long-term value for the sake of shareholders by monitoring and disciplining managers. Our study contributes to a better understanding of the value-increasing effects of foreign ownership on firm value by demonstrating that the reduction in agency costs due to the foreign ownership effect is associated with higher growth rates and thus higher firm value. Our study also contributes to the literature on the foreign ownership–firm value nexus by showing that foreign investors play a crucial role in ensuring sustainable firm growth.
... It implies Indonesian firms in 2013 were using dividend payouts to signal better growth in the future. We support Amidu & Abor (2006), results while contradicts Fama & French (2001). Overall, there is insufficient evidence that firms in Indonesia utilize dividends to mitigate agency costs. ...
Article
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Prior studies show that profitability is the main financial aspect that determines a firm’s dividend policy. To add to the Indonesian’ dividends literature, this study examines the role of earnings and tax as dividend policy in Indonesian listed firms. This study argues that besides profitability, Indonesian firms consider other financial performance, namely earnings (contributed capital and prior year earnings) and tax to determine their dividend policy, since earnings reflect firm’s real ability to pay dividends, and tax affects the number of dividends should be paid. Using 1688 firm-year observations of Indonesian firms from 2012 to 2016, the panel data regression result shows that prior year’s earnings and contributed capital, are the significant determinants of firms sample’s dividend policy. However, the insignificant result is found in the corporate tax role. Meanwhile, the robustness test, earnings, and tax are significant and of the expected sign. The result implies that the higher the firms’ earnings, the higher the dividend payout ratio that is used as a proxy to the firms’ dividend policy. Corporate tax, on the other hand, is a significant negative determinant in some years of the observation. Higher corporate tax hinders managers to increase the dividend payout ratio.
... On the other hand, CISCO and Microsoft have liquidity surplus because of rather fewer dividend payouts. According to the analysis performed by Fama and French (2001), the percentage of companies paying dividends were 66.5 in 1978. This trend decreased to 20.8% in 1999. ...
... The evidence found in this research is supported by the evidence found in both developed markets and developing ones. Regarding to such determinants as profitability, size, and investment opportunity, the findings of this research are consistent with the results of a study conducted by Fama and French (2001), who have studied the dividend policy of NYSE, AMEX, and NASDAQ firms for the period of 1926 to 1999. They found that the dividend-paying companies are larger, more profitable, and have high investment opportunities than the non-dividend paying companies. ...
Article
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[full article and abstract in English] The purpose of this research is to examine the factors that determine the dividend policy of non-financial firms listed on the Warsaw Stock Exchange (WSE) in Poland and that of the annually paid dividends. Up to now, many empirical studies related to dividend policy were carried out, showing the differentiation of factors affecting the dividend policy and their interaction. Thus, with this study, it would be possible to give a view on the dividend policy of corporations listed on the WSE for the period from 2008 to 2016. The study covers non-financial companies listed on the WSE in Poland. The Tobit regression is used to identify the impact of factors influencing the companies’ distribution of dividends. The variables that may explain a firm’s dividend decision and that were used in this study are selected based on the theory and available empirical researches and then also determined by data availability. These are profitability, investment opportunities, measures of size, leverage, and liquidity. As a result of this study, the factors that determine the dividend policy of companies were verified in the context of the companies listed on the WSE. Moreover, it indicates which of the existing theories on dividend policy could be applied to the capital markets of Poland. Thus, it provides new insights into the theory of dividend policy.
... Except for variables in logarithmic form, all other control variables that had values higher than the mean plus-or-minus three standard deviations are considered outliers and winsorized to the 5th and 95th percentiles. All the control variables used in our analyses have been chosen taking into account the existing literature (e.g., Blume 1980;Rozeff 1982;Easterbrook 1984;Fama and French 2001;De Angelo, 2006;Jain 2007;Ferris, Jayaraman, and Sabherwal 2009;Fidrmuc and Jacob 2010;Baik, Kang, and Kim 2010;Ucar 2016;Huang and Paul 2017;Chintrakarn et al. 2018). As robustness tests, we use several econometric techniques such as the fixed-effects model to control for omitted variable bias and an instrumental variable approach (IV) to account for endogeneity and the possibility of reverse causality. ...
Article
This study investigates the relationship between local culture, as measured by religiosity, and dividend payouts based on a sample of 155 Italian firms over the period 2000–2016, yielding 2,382 firm-year observations. We find a significantly positive relationship between religiosity and dividend payouts, with firms headquartered in higher religiosity areas paying more dividends than firms located in lower religiosity areas. We also find no relationship between religiosity and stock returns. An additional test also suggests that religiosity of Italian firms could mitigate agency costs. Our results are consistent with the “bird-in-the-hand theory” and generally consistent with the empirical literature on the relationship between social values (local culture) and corporate decisions. Since religiosity is a determinant of dividend payouts, it also is an appropriate explanatory variable when examining the behavior of a firm’s dividend policies.
... Only a few studies rely on survival as a measure for IPO performance. Fama and French (2001), as well as Baker and Kennedy (2002), analyze the survival of firms on the stock market (NASDAQ) but restrict their study to focusing only on firm age and size as major determinants of survival. Peristani and Hong (2004) find that pre-issue profitability is a good predictor of aftermarket survival, while Hensler et al. (1997) indicate that size and age increase aftermarket survival. ...
... They concluded that contagion impacts appear consistent with informed rather than the contagious panic behaviour. Fama and French (2000) studied the disappearing dividends: changing firm characteristics or lower propensity to pay? They examined the company's listing in NYSE, AMEX, and NASDAQ during the period from 1963 to 1998 in US capital markets. ...
Article
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The present research study examined the impact of different dividend rate announcements on stocks prices in the Indian stock market. The results observe in twenty-four times based on market capitalization wise and dividend rate wise for final dividend announcement. The results of the study are not the same for different dividend rate classifications and different market capitalizations. The study found positive abnormal returns on event day in most of the classifications and it is similar to Litzenberger and Ramaswamy (1982), Asquith and Mullins Jr (1983), Grinblatt, Masulis and Titman (1984), Chen, Nieh, Da Chen, and Tang (2009) and many previous research results studied in major developed stock markets and emerging stock markets. Full sample and small-cap final dividend rate 100 percent to 199 percent average abnormal returns are positively significant and other final dividend rate classification abnormal returns are positive in most of the observations, but returns are not significant. Large-cap average abnormal returns are more sensitive to different dividend rates and small-cap reacts positively in all classifications. So, different market capitalization final dividend actions impact on stocks in India varies in different dividend rate classifications
... Given raising capital is costly, optimal dividend policy is dominated by 'retention of cash' in order to fund growth. Fama and French (2001) found US dividend-paying firms were significantly larger, more profitable, with fewer growth options than firms that did't pay dividends. Empirical results in DeAngelo et al. (2004) identified dividends are primarily the domain of large mature firms, which is inconsistent with theories of 'information content' 16 . ...
... To reach investment decisions that produce positive net present value (Modigliani & Miller, 1961;Brigham & Houston, 2001). Fama (2001) and Delira (2007) state the value of a company is solely determined by investment decisions. Research conducted by Hidayah (2015) suggests that CAPBVA has a positive and significant effect on Price Book Value. ...
Article
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This study aims to examine the influence of capital expenditure variables, company growth, and company size on firm value through financial performance is moderated by the capital structure of the company in LQ 45 companies listed on the Indonesia Stock Exchange. The research methodology uses quantitative methods, the number of observations as many as 50 sourced from 45 companies over 5 annual periods. The results of this study found that: (1) Capital Expenditure (Capex), Company Growth (Growth) and Company Size (Size) had no effect on Company Value (PBV), (2) Capital Expenditure (Capex) does not affect Financial Performance (ROE), (3) Company Growth (Growth) and Company Size (Size) have a significant effect on ROE, (4) Financial Performance (ROE) has a significant positive effect on Value Company (PBV), (5) Financial Performance (ROE) does not mediate the effect of Capital Expenditure (Capex), Company Growth (Growth) and Company Size (Size) on Firm Value (PBV), (6) Capital Structure (DER) moderates the influence of Financial Performance (ROE) to Company Value (PBV)
... For future research on this topic, a possibly relevant clue could be the generalized growth of share buybacks as a way to remunerate shareholders (as opposed to dividends). The financial literature thoroughly documents its explosive growth in the United States since the 1970's, while comparing dividends and buybacks in terms of tax efficiency and signaling, among other aspects (Bagwell and Shoven, 1989;Fama and French, 2001;Skinner, 2008). The size of this phenomenon is remarkable, indeed, Floyd, Li, and Skinner (2015: fig. 3) show that the total amount allocated to share repurchases surpassed in the 2000's that of dividends in the United States. ...
Thesis
Le 1er chapitre présente une série de 50 ans sur les hauts revenus chiliens basée sur des données fiscales et comptes nationaux. L’étude contredit les enquêtes, selon lesquelles les inégalités diminuent les 25 dernières années. Au contraire, elles changent de direction à partir de 2000. Le Chili est parmi les pays les plus inégalitaires de l’OCDE et l’Amérique latine. Le 2ème chapitre mesure la sous-estimation des revenus factoriels dans les données distributives. Les ménages ne reçoivent que 50% des revenus du capital brut, par opposition aux firmes. L’hétérogénéité des taux de réponse et autres problèmes font que les enquêtes ne capturent que 20% de ceux-ci, contre 70% du revenu du travail. Cela sous-estime l’inégalité,dont les estimations deviennent insensibles à la "capital share" et sa distribution. Je formalise à partir d’identités comptables pour ensuite calculer des effets marginaux et contributions aux variations d’inégalité. Le 3ème chapitre présente une méthode pour ajuster les enquêtes. Celles-ci capturent souvent mal le sommet de la distribution. La méthode présente plusieurs avantages par rapport aux options précédentes : elle est compatible avec les méthodes de calibration standard ; elle a des fondements probabilistes explicites et préserve la continuité des fonctions de densité ; elle offre une option pour surmonter les limites des supports d’enquête bornées; et elle préserve la structure de micro données en préservant la représentativité des variables sociodémographiques. Notre procédure est illustrée par des applications dans cinq pays, couvrant à la fois des contextes développés et moins développés.
... In rare instances, profitability was found to be insignificant (Hellström & Inagambaev, 2012). The present study employed return on assets (ROA) as a proxy for profitability because ROA captures the accounting profits that are available for distribution to shareholders (Fama & French, 2001). Companies with higher profitability can continue to finance growth while still making consistent payments to shareholders (Forti et al., 2015). ...
Article
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Background: Dividend payout is one of the most debated contemporary corporate finance issues. No universal theoretical model describes the factors that corporate managers consider in dividend payout decisions. This study extends previous South African empirical research on dividend payout trends and motivations for Johannesburg Stock Exchange (JSE)-listed industrial companies over the period 1999–2014. The study period coincides with the introduction of share repurchases as an alternative distribution method, covers multiple dividend distribution regulatory amendments and overlaps the global financial crisis of 2008. Objectives: The aim of this study was to ascertain whether the global financial crisis of 2008 affected dividend payouts and to identify factors that influenced dividend payout decisions of JSE-listed industrial companies over the period 1999–2014. Method: Descriptive statistics and a fixed-effects panel regression analysis were applied to dividend data extracted from published annual reports of JSE-listed industrial companies over the period 1999–2014. Results: Dividend distributions of JSE-listed industrial companies increased over the study period in contrast to declining global dividend distribution trends. A significant increase in dividend payout was found when comparing pre- and post-recession periods, in line with the positive impact of dividend distribution regulatory reforms. Company size (+), profitability (+), sales growth (−) and free cash flow (−) were identified as significant factors that influence dividend distributions of JSE-listed industrial companies.
... Researchers have positively correlated the size and profitability of the firm with the dividend payout policy and suggest that larger firms pay dividends regularly. Fama & French (2001) conducted a study to find out which firms pay dividends and found that larger firms with more profitability pay more dividends than those firms which are smaller in size and have less profitability. Crutchley & Hansen (1989) conducted an analysis to test the impact of agency costs. ...
Article
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Dividend policy/payout (DP) is one the areas of finance where extensive research has been conducted to find out the determinants that why firms pay the dividend and what motivates them to share their earnings with shareholders. This situation is termed as a puzzle by researchers. To solve this puzzle, researchers have outlined various financial and non-financial factors. This research is carried out to find the effect of financial factors viz. size, profitability, risk, leverage, and liquidity over the DP of the firms listed on Pakistan Stock Exchange (PSX) in the cement sector. Firms involved in the manufacturing of cement are selected and other firms of the sector are excluded. Data for ten years i.e. from 2009 to 2018 has been extracted from the published annual financial statements of the firms. To verify the relationship between dependent and independent variables, the bivariate correlation has been applied and to find the best-fit regression model, backward multiple regression has been applied. According to the findings from backward multiple regression, profitability and liquidity are the factors that influence the dividend payouts of the firm positively and significantly. Whereas, size, risk, and leverage have failed to show their significance over the dividend payment of the sector.
... * Significance at the 10% level. Denis and Osobov (2008), Fama and French (2001), Shao et al. (2013) also find supporting evidence for this negative relationship. Furthermore, our regression results show that there is a positive relationship between firm leverage and dividend policy. ...
Article
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Agency problem between shareholders and creditors can be reduced by two mechanisms namely reputation-building and debt covenant. Prior studies document supporting evidence for both hypotheses with a positive relationship between creditor rights and dividend policy. However, they fail to test reputation-building mechanism and debt covenant mechanism separately. This paper finds that credit information and legal rules supporting moveable assets are promising variables to fill this gap since the two mechanisms provide opposite effects of credit information and legal rules on dividend policy. With a sample of 37,673 observations collected across 39 countries over the period from 2013 to 2015 we find supporting evidence for debt covenant hypothesis and creditor information has a complementary effect on legal rules in determining corporate dividend policy. Keywords: Creditors, Dividend policy, Reputation building, Debt covenant, JEL classification: G34
... They concluded that contagion impacts appear consistent with informed rather than the contagious panic behaviour. Fama and French (2000) studied the disappearing dividends: changing firm characteristics or lower propensity to pay? They examined the company's listing in NYSE, AMEX, and NASDAQ during the period from 1963 to 1998 in US capital markets. ...
Article
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This research primarily aims to study the impact of dividend announcements on the stock price of companies listed in the Indian stock market. Incidental to the study, it is necessary to understand whether the market trends have any role in affecting the changes in share prices due to dividend announcements. The companies listed on the stock market are diverse in terms of the industry, market capitalization, and performance. We analyze the S&P BSE 500 index stocks, which declare cash dividend every year without fail for ten years from 2008 – 17. Total 1755 sample was tested for dividend announcement and sample divided into large, medium, and small sample sizes based on the market capitalization of the stocks to test the market trend effect. Event methodology market model used to calculate the abnormal returns on the dividend announcement day. The present research study examined the impact of dividend announcements on stocks in the Indian stock market. The results observe in twenty-four times based on market capitalization wise and market trend-wise dividend announcements. The results of the study are not the same for all dividend announcement observations. The study found positive abnormal returns on event day in most of the dividend announcement observations and it is similar to Litzenberger and Ramaswamy (1982), Asquith and Mullins Jr (1983), Grinblatt, Masulis, and Titman (1984), Chen, Nieh, Da Chen, and Tang (2009) and many previous research results studied in major developed stock markets and emerging stock markets. Full sample, large-cap, and small-cap final dividend average abnormal returns are positively significant only in bull market trend (period 2) similar to Below and Johnson (1996) and other market trends final dividend announcement abnormal returns are positive in most of the observations, but returns are not significant. Average abnormal returns are sensitive to market trends, especially abnormal small-cap returns more vulnerable to market trends.
Article
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Many articles featuring panel data modelling tend to begin their considerations with an introduction of the Pearson linear correlation coefficients matrix between the analysed variables. The aim of the article is to prove such an approach unsuitable in the analysis of panel data dependencies. Instead, an attempt has been made to propose a more appropriate measure – a correlation coefficient between the empirical and fitted values of the dependent variable of the estimated panel model (with fixed or random effects) in relation to the variable whose dependency towards the dependent variable is being studied. Pearson’s linear correlation coefficient does not reflect the basic advantage of panel data, which is the ability to provide information about the dependencies of the studied phenomena simultaneously in time and space. The fact that one observation relates to object i during period t and another to object j during period t + 1 is irrelevant for the calculation of the coefficient. Pearson’s coefficient, however, can be used when conducting sub-calculations in panel data analysis. The presented considerations have been illustrated by the calculations of the relationships between the structure of capital and the profitability and size of 17 construction companies listed on the Warsaw Stock Exchange in the years 2009–2018 (170 observations) which created a balanced panel. A specification of the advantages and disadvantages of the proposed solution was formulated on the basis of the calculations.
Article
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This study examines the all possible dividend policy effect on commercial banks stock price listed at Pakistan stock exchange. The study covers 17 listed commercial banks for the time period 2014 to 2017. To analyze secondary data multiple regression analysis was applied using Stata with the model (MP) Market Price Per Share as the dependent variable and (EPS) Earning Per Share, (ROE) Return on Equity, (RR) Retention Ratio and (DY) Dividend Yield are independent variables. Descriptive statistics were applied to data to check mean, median, maximum and minimum value. The finding of the study shows that EPS shows a highly significant positive impact on the share MP and the other three independent variable return on equity, dividend yields, and retention ratio also show a significant but negative impact on the share MP. These results support the finding of previous studies done by another researcher in the past.
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Rapid growth of economics makes many firms continue to develop their business. Along with the rapid growth of business the high competition rising between firms in term to snatch the market or consumers. The higher of competition gives an impact to firms life cycle which makes many firms keep develop their business strategy to attract the investors and consumers. Under assumption that the median is 0.76 based on sample, the result of calculation of the retained earnings to total equity (RETE) in period of 2016 shows that life cycle of each firms are varies. The result shows that firms under median are not at mature stage while firms above median are categorized as mature firms.
Chapter
Our study investigates the influence of national culture on corporate dividend policy by considering Schwartz’s two cultural dimensions: harmony and hierarchy. The main motivation of the analysis is that people decisions are driven by their feelings and emotions, and these subjective factors can be as relevant as the objective companies’ factors when looking at dividend policy decisions. Using a database of 10,878 companies from 56 countries, for the period 2008–2014, we find that national harmony is positively related, and hierarchy negatively related to the dividend payout ratio. The local culture seems to be significantly associated with the dividend payout ratio.
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Capital markets being the backbone of the economy, are expected to be functioning efficiently. Efficiently-priced financial markets are considered a catalyst for the economic growth of the nations (Malkiel, 2010). Efficient markets are the reflection of security valuations. In an informationally efficient market, no one can beat the market and make abnormal returns based on the information because the information is instantaneously observed in the stock prices. The current paper analyses the market efficiency of three of the most popular corporate events, i.e., announcement of cash dividends, bonus issues, and stock split in the Indian context. The sample is 2253 pure cash dividend announcements (627 large-caps, 552 mid-caps, and 1074 small-caps), 152 bonus issue announcements (49 large-caps, 33 mid-caps, and 70 small-caps), and 181 stock split announcements (35 large-caps, 34 mid-caps, and 112 small-caps) were used for this study. Event methodology market model used to calculate Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR). The results of the study have few findings which are contradictory to the existing literature on market efficiency. The cash dividend announcements have shown evidence for market efficiency, and results are contrary to Gupta et al. (2012), but the results are similar to Mishra (2005). Bonus issue announcements also have shown evidence for a semi-strong form of efficiency, test results identical to Dhar and Chhaochharia (2008), Kumar and Mittal (2015). Stock split announcements have not shown market efficiency, and the effect is similar to the study of Lakshmi and Roy (2012) and contrary to Chavali and Zahid (2011). Our results also support the premise that the emerging countries depict evidence of market efficiency (Bechev, 2003). Finally, we conclude that market efficiency results differ based on corporate announcements and market capitalization.
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This study intends to assess the accuracy of life cycle theory prediction in explaining the dividendpayment policies when a company in Indonesia conducts the Initial Public Offerings. Technically, this studyaims to (1) examine the impacts of Retained Earnings to Total Equity (RE/TE), return on assets, firm age, firmsize, and growth opportunity toward propensity to pay dividends, and (2) examine the impacts of RE/TE, returnon assets, firm age, firm size, and growth opportunity toward dividend pay-out ratio. The population of thisstudy was all companies that conducted the Initial Public Offerings on the Indonesia Stock Exchange from2000 to 2017. The binary logistic regression model was used to analyze the data for reaching the first purposewhile the ordinary least square was applied to answer the second one. The results show that dividend paymentpolicies in the first year of companies conduct the Initial Public Offerings are in line with the life cycle theoryprediction. It is proved by the positive and significant impacts of RE/TE, return on assets, firm age, and firmsize toward propensity to pay dividends. Besides, it is also proved by the positive and significant impacts ofreturn on assets and firm size toward dividend pay-out ratio; as well as the negative and significant impact ofgrowth opportunity toward dividend pay-out ratio. The study does not acquire that growth opportunity gives asignificant impact on the propensity to pay dividends, and RE/TE and firm age significantly impact dividendpay-out ratio.
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This paper aims to examine the influence of dividend in sustaining Corporate Governance and Corporate Social Responsibility on Shariah Compliance Companies Performance. Times series cross-sectional data, also known as panel data were employed. Both the direct effect as well as the moderating effect of dividend with Corporate Governance and Corporate Social Responsibilities toward Shariah Compliant Companies performance were analysed by Ordinary Least Square (OLS) with Panel Corrected Standard Error (PCSES) model. The findings of this study will contribute to the knowledge to public, shareholders, stakeholders, standard rulers such as Securities Commission & Bursa Malaysia especially the shariah compliance companies on the effect of dividend payout as a motivational tool to improve the company performance especially when company sustained a good corporate governance and corporate social responsibility.
Thesis
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In the period 2008 – 2017, in the very first week by January 2008, the Indian stock markets were on massive bullish trends especially on the 10th day when the benchmark index BSE SENSEX was recorded at 21,206.77 points, supported by domestic institutional investors and retail investors on expectations that India will remain one of the most reliable destinations to foreign institutional and domestic investors. By 21st January 2008, the market sentiment dramatically changed and the benchmark index BSE SENSEX experienced the most significant single day loss ever due to possible global financial crisis and that bear sentiment continued another one year till the markets recovered. In the year 2011 also the markets started losing the value and this continued till the beginning of 2012 when the markets finally recovered and another bearish trend observed during the period 2015 -2016 also. During 2008 – 2017, Indian stock markets market capitalization increased from Rs. 50 lakh crores in 2008 to Rs. 150 lakh crores in 2018 almost a 3x time’s growth in ten years. Many factors, like the country’s financial situation, currency fluctuation, crude oil fluctuation, trade wars, development of a country, etc., influence the world economic growth. The world economic growth affects the country’s growth also because the economy now is a global factor. Growth of country’s influence by along with the world economy and local factors also like political stability, currency stability, industry growth, financial institutions growth, investments, savings, stock market growth, corporate growth, and many more. Rise in the stock markets is influenced by domestic economic factors as well as global factors. An important thing to note is how stock markets influence corporate actions and vice versa.
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Chapter
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