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The Lintner model revisited: Dividend versus total payout

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Abstract

We analyze how the introduction of repurchases in 1998 affected the payout policy of German firms. To this end, we estimate Lintner (1956) partial adjustment models for both dividends and total payouts. We also analyze the implications for payout of changes in both permanent and transitory earnings. Our results are inconsistent with the hypothesis that dividends and repurchases are perfect substitutes. We also find that repurchases have not taken over the role of special dividends. Our results support the flexibility hypothesis that predicts that (regular) dividends are used to disburse permanent, and more flexible payout methods (special dividends and repurchases) transitory, earnings.

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... The international evidence presented in Jacob and Jacob (2013) suggests that tax issues are an important determinant of corporate payout decisions, but that the effects are smaller than reported in previous single-country studies. We note, though, that results of previous research indicate that tax considerations are not a first-order determinant in the payout decision of German firms (e.g., Amihud and Murgia, 1997;Andres et al., 2014Andres et al., , 2015 3 Hypotheses ...
... As the latter investors favor repurchases over dividends we thus expect an inverse relation between dividend yield and the probability of a repurchase. However, despite these arguments, previous papers indicate that tax considerations are not a first-order determinant of payout decisions of German firms (see Amihud and Murgia, 1997;Andres et al., 2014Andres et al., , 2015. Skinner (2008) provides evidence that most U.S. firms either use dividends and share repurchases or solely use the latter method of payout. ...
... Jagannathan et al. (2000) provide evidence that dividends are paid out of permanent cash flows while repurchases are paid out of transitory cash flows. Andres et al. (2015) support this finding for German firms. Following these results, firms with more volatile cash flows should be more likely to experience transitory changes in cash flows and should thus be more likely to repurchase shares. ...
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We analyze the decision to announce an open market share repurchase and the share price reaction to the announcement. We use a conditional estimation approach which takes into account that the repurchase decision is made rationally and that, consequently, there is a potential selection bias. This approach requires a "non-event sample" of firms that could reasonably be expected to announce a repurchase but did not. The specific institutional rules for share repurchases in Germany allow us to construct such a sample. We find that a conditional approach yields results that are qualitatively comparable but differ in detail from those obtained using a non-conditional approach. We confirm earlier findings of negative share price performance prior to the repurchase announcement and positive and significant announcement day abnormal returns. The results of our probit models are consistent with the free cash flow hypothesis and provide at least partial support for the rent extraction, signalling and capital structure hypothesis. The results of the cross-sectional regressions provide strong support for the signalling hypothesis once we control for selection bias.
... In fact in the recent years (2010-15), the payout policy has become more consistent with the reported adjustment coefficient to be 0.87 (t-value is 102.2). A paper by Andres, Doumet, Fernau, and Theissen (2015) studied the firm's choices between dividend payout and total payout (share repurchases) in Germany. They report that dividends are more consistent or sticky than total payouts, which is consistent with the flexibility hypothesis that dividends are predominantly paid out of permanent earnings. ...
... We find that dividends in India are not sticky and vary according to the availability of profit and they are determined by liquidity. Unlike in some studies of non-Indian firms (like Andres et al., 2015;, size of the firm is not a statistically significant determinant of dividend policy. It is more affected by availability of profits and liquid cash. ...
Article
This article studies the determinants and evolution of dividends of BSE 500 companies in India over a period from 2001 to 2015. It finds that although these firms have been paying dividends, they are not consistent. In India, dividends are more determined by the availability of profits and liquidity. The speed of adjustment coefficients which is estimated using the Lintner model, are found to be high and statistically significant over the sample period. Results from the study reveal that although leverage is an important determinant of dividend, size is not. In this study, two important research questions arises regarding studying quality of earnings and the reluctance to adopt and predictable dividend policy.
... He says that despite the credit crunch and earnings volatility, British companies set high payout ratios. Andres et al. [17] analysed Lintner's model for both dividends and total payouts. The results prove a contradiction with the hypothesis that dividends and share repurchases are perfect substitutes. ...
... With the use of the classical model for determining the pay ratio, according to Rejnuš [17], Table 2 shows the values of dividends per share and net earnings per share, as well as the resulting values of the determined pay ratio in individual years. Figure 1 shows significantly different results of determining the payout ratio using these two different models. ...
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Initial determination of the payout ratio should be an integral part of each company strategy; it is a cornerstone of a long-term operation of any company. The aim of this contribution is to analyse the possibilities of determining the payout ratio of the company using dividend models and to design the most optimal application of the dividend model, and to define the limitations for the application. The data required for the application of the dividend models are obtained from the annual reports of Komerční banka, PLC. for the years of 2006-2018. The obtained data are used to calculate the classical payout ratio model, and subsequently to determine the payout ratio according to the Lintner model. Using the method of comparison, the obtained results for the application of the pay ratio are contrasted. The classic payout ratio model coincided directly with the results of the payout ratios of Komerční banka, PLC. and therefore turned out to be optimal for the application. The Lintner model is considered in literature to be very well functioning. However, this research confirmed that the resulting values of payout ratios after the application of the Lintner model are unacceptable in the long run.
... Given size and age as inverse measures for information asymmetry (Fama & French, 2002;Frank & Goyal, 2003), we expect a negative relationship between size and age of firm and its degree of dividend smoothing. Following previous studies, we measure firm size as natural logarithm of total assets (Lee & Li, 2012); whereas firm age (AGE) is measured as the number of years since its incorporation (Andres, Doumet, Fernau, & Theissen, 2015); (Andres et al., 2015). ...
... Given size and age as inverse measures for information asymmetry (Fama & French, 2002;Frank & Goyal, 2003), we expect a negative relationship between size and age of firm and its degree of dividend smoothing. Following previous studies, we measure firm size as natural logarithm of total assets (Lee & Li, 2012); whereas firm age (AGE) is measured as the number of years since its incorporation (Andres, Doumet, Fernau, & Theissen, 2015); (Andres et al., 2015). ...
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Integrating reputational considerations in the analysis of dividend smoothing, we study the dividend smoothing determinants. We examine the extent to which the asymmetric information and agency costs theories explain dividend smoothing and whether their proxies’ impact varies given the firm’s reputation as a high- or low-smoothing firm. Our quantile regression results confirm that the determinants vary significantly across smoothing quantiles. In the low-smoothing quantiles, capturing firms with a lower tendency towards smoothing and hence facing lesser or no reputational concerns, the degree of dividend smoothing increases significantly with size, age, and tangibility, whereas it declines with ownership concentration and risk. Interestingly, most of these factors turn insignificant for firms in the high-smoothing quantiles, facing higher reputational stakes. Emphasizing the predominance of reputational effects on the determination of dividend smoothing, these findings help explain the dividend smoothing puzzle: why firms with lesser or no need for dividend smoothing still smooth high.
... První specifikace analýzy celkových výplat je založena na klasickém Lintnerově modelu, který je stále akceptovaný a široce využívaný v současné literatuře (viz Bena a Hanousek, 2006;Leary a Michaely, 2011;Brockman, Tresl, a Unlu, 2014;Andres, Doumet, Fernau a Theissen, 2015). Lintner (1956) nejprve identifikoval široké využití vyhlazování dividend a pak navrhl model, který vychází z předpokladů, že manažeři veřejně obchodovaných společností nejsou ochotni nastavit výplatu dividend na úrovni, která by mohla být v blízké budoucnosti snížená. ...
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This paper examines payout characteristics of firms in a cultural and political alliance of four Central European nations, the Visegrad Group. The sample consists of more than 100,000 firmyear observations from 2001 to 2015. Our results indicate that smoothing behaviour diminishes among firms with majority ownership and that the total payout characteristics behave according to existing theories on passive ownership behaviour and agency costs.
... and for which there were at least five years of accounting data available over the ten-year period from 1984 to 1993 . They used a partial adjustment model to estimate the target payout ratio and the speed of adjustment of dividends . They found that German companies did not base their dividend decisions on published earnings, but on cash flows . Andres et al . (2015) estimated, on a large panel of all non-financial firms listed on the Frankfurt Stock Exchange that were among the largest 200 (as measured by total assets) in Germany at any time during the 21-year period of 1988-2008, Lintner partial adjustment models for both dividends and total payouts to analyze how the introduction of repurchases i ...
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The aim of the article is to verify a hypothesis of the ownership structure influencing the dividend strategy of companies listed at both main stock and alternative markets of the Warsaw Stock Exchange. In order to evaluate the hypothesis, dynamic panel Lintner’s partial adjustment models with individual random effects have been estimated by means of instrument variables method, separately for each of the five company groups specified due to their ownership structure. Each one has systematically payed out dividends in the years 2012–2016. The results confirm that the dividend strategies of companies significantly depend on their ownership structure. Companies controlled by strategic investors had the highest dividend payout ratio, whereas the ones controlled by institutional investor – the lowest.
... This theory developed by Baker and Wurgler (David and Ginglinger 2016, Gonzalez et al. 2016, Mori and Ikeda 2015 has been founded on the negation of the assumption of market efficiency. In that research study the authors suggested that, first, the investors, because of some psychological or institutional (in other words, irrational) reasons, prefer the shares that ensure that or another amount of payouts, and, second, the managers of the companies try to customize their dividend policies to meet the changing requirements set by the investors to the payments (Andres et al. 2015, Fairchild et al. 2914. Consequently, according to the investor preference satisfaction theory, the companies can boost the demand for their shares meticulously customizing their dividend policies to meet the changing demand for dividend payouts. ...
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The study aims to determine the nature of the effect produced by dividend policy on the market price per share as a factor of company’s efficiency. In this regard, the study develops the concept of direct functional effect of the dividend policy on the market price of the company’s stock. The principal advantage of this approach is represented by the possibility to determine the intensity of change and the elasticity of the market price per share affected by the dynamics of dividend payout ratio given the institutional environment and the industry the issuer belongs to. It also helps determine the influence and provides arguments for establishing the modern type of companies’ dividend policies under the conditions of both developing and developed stock markets. This approach establishes directly proportionate meaningful effect produced by the company’s dividend policy on the market price of its shares and makes the basis for improving theoretical foundations of dividend policy management systems in joint stock companies.
... where Proceeds is the total proceeds distributed to shareholders in firm i during fiscal year t and Net profit is the reported net profit for the group in firm i during fiscal year t, which is similar to Andres et al. (2015). To be included in our analysis of payout ratios, we follow Farre-Mensa et al. (2014) and exclude firms with negative earnings and those with a payout ratio greater than one. ...
Article
Using a sample of Swedish publicly listed firms between 1970 and 2013, we examine whether payout policy differs between industrial and financial firms. Specifically, we investigate whether payouts and their composition (primarily dividends and stock repurchases) differ between firms. We find that dividends are the major vehicle in distributing earnings to shareholders and also that payouts are more frequent for financial than industrial firms. Stock repurchases have not replaced dividends in Sweden. The total payout ratio, including dividends, stock repurchases, and other forms of cash distributions to shareholders relative to earnings are roughly the same for industrial and financial firms. Financial firms are more reluctant to cut or omit dividends than industrial firms. Our examination of dividend smoothing shows that although both industrial and financial firms smooth dividends, they tend to smooth less during the last two decades as indicated by an increase in the speed of adjustment.
... Though not clearly enough, we can argue that combined announcements seem to be preferred compared to pure announcements. This finding is in line with Andres, Doumet, Fernau, and Theissen (2015) who claimed that dividends and payout methods are no perfect substitutes. Table 10 presents the results from return of capital announcements in the pre and post-debt crisis period. ...
Article
This study attempts to resolve the puzzle regarding the announcement effects of cash distributions. The introduction of taxes on dividend income since 2009 has led many Greek listed companies to seek alternative ways of distributing untaxable income, at personal level, to shareholders, mainly through the form of return of capital. Employing a unique dataset of 130 returns of capital and a control sample of 890 dividends between 2000 and 2014, we investigate the stock price behaviour surrounding the announcement of these cash distributions. The results from the event study reveal a statistically significant market reaction on the announcement day for both cash distributions; however that of returns of capital was more than double compared to dividends (1.53% vs. 0.72%). The market reaction was even stronger when firms opted to distribute a dividend and a return of capital contemporaneously. Regression analysis delves into the determinants of the market reaction documenting that dividend or return of capital yield, firm size and profitability levels explain much of the stock price appreciation on announcement dates.
... First, share repurchases have a pro-cyclical policy stance since they are not firm commitments, whereas dividends are considered as smoothed and stable (Lintner, 1956;Brav et al., 2005;Fernau and Hirsch, 2019), and even sticky (Ha et al., 2017). Second, share repurchases are associated with transitory components of earnings (Guay and Harford, 2000;Jagannathan et al., 2000;Lee and Rui, 2007), which contributes to dividend smoothing as well (Andres et al., 2015). Third, repurchase activity is more sensitive to the market prices of shares, e.g. stock market liquidity has a direct impact on share repurchases stronger than dividends in both size and likelihood terms (Brockman et al., 2008;Hillert et al., 2016). ...
Article
We examine the impact of economic policy uncertainty as measured by Baker et al. (2016) on share repurchase activity in the U.S. market. We employ panel analyses with 2,258 firms between 1990 and 2017 using a quarterly dataset. Our findings reveal that firm managers tend to make less or no repurchases under high level of uncertainty in the economy.
... With a focus on the acceleration of dividends during a relevant year, special dividends as a means of payout could be employed. Andres, Doumet, Fernau, and Theissen (2015) reported results which support the flexibility hypothesis that predicts that (regular) dividends are used to disburse permanent earnings, and more flexible payout methods (special dividends and repurchases) are used to disburse transitory earnings. Owing to the different labelling of special dividends, shareholders might perceive special dividends as once-off payments and will therefore not expect a similar payment during the next period (Andres et al., 2015, p. 66). ...
Article
Background: The anticipated change in tax regime in South Africa during 2012 provided the opportunity to investigate the role of taxes in affecting corporate payout behaviour. Aim: The aim of this study was to investigate whether dividend declarations were accelerated or postponed during 2012 for a sample of companies listed in South Africa based on the financial years 2009 to 2015. Methods: Firstly, a mixed model analysis of variance was employed to investigate the trend in mean days-to-declaration of final and interim dividends and whether the days-to-declaration of dividends in 2012 differed significantly from other years. Secondly, an investigation at individual company level was performed to gain an insight into the timing of declarations before and after 1 April 2012, the non-declaration of dividends during 2012 and special dividends during 2012. Results: For final dividends findings do not suggest an acceleration or postponement during the 2012 financial years of companies selected. For interim dividends, a significant increase in the days-to-declaration during 2012 was noted (indicative of a postponement during 2012). An investigation at individual company level of interim dividend declarations before and after 1 April 2012 furthermore supports a tax explanation for the postponement noted during 2012. Non-declarations of dividends and special dividends during 2012 were not noted as being utilised for the postponement or acceleration of dividends during 2012. The findings of this study contribute to dividend policy literature by providing empirical evidence that the timing of interim dividend declarations was adjusted in the year of an anticipated tax reform.
... This led the author to conclude that American companies are spending less and less profit on dividends and explains the increasing scale of their share repurchases. Andres et al. (2015) applied the Lintner model to the 200 largest non-financial companies listed on the Frankfurt Stock Exchange over a period of 21 years . The sample they constructed included an average of 67.2% of the total German market capitalization. ...
Article
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Lintner’s (1956) partial adjustment model identifies the company’s long-term dividend policy by setting a dividend target payout ratio and the speed of adjustment. And although the model has undergone various modifications and methods of estimation over more than 60 years, it is still a good tool for analyzing dividend decisions made by companies. The aim of the article is to show the usefulness of the Lintner model for analyzing changes in the company’s dividend policy during the pandemic turmoil. For the illustration, Hydrotor SA was chosen, which, the longest time at the Warsaw Stock Exchange, continuously pays dividends. The calculations showed that the situation in 2020 resulted in a revision of the company’s long-term dividend strategy, which resulted in a lowering of the dividend target payout ratio and a greater attention to the current situation (current net profits)—an increase in the speed of adjustment.
... Substitutability is supported for US data in Grullon and Michaely (2002), but other empirical results are conflicting. For German firms, Andres et al. (2015) find results inconsistent with dividends and repurchases being perfect substitutes. For the UK, evidence suggests only weak substitutability. ...
Article
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The economics of dividend policy has focused on the single tight narrative that dividends keep managers honest, mitigating concerns that they over-invest. This article provides a critique of that agency narrative, arguing that pressure from short-term focused investors, executives and board members pushes the firm into preemptive actions of returning too much cash via dividends. We analyze three channels of influence for investor pressure through 1) threat of takeovers, 2) shareholder value oriented corporate governance, measured by director independence and board equity incentives, and 3) trading and institutional ownership patterns. We find that firms adopt a higher dividend payout to discourage takeover bids. Also, FTSE 100 firms, that are most focused on shareholder value governance in the form of equity-based compensation and a higher share of independent directors, display a higher dividend payout. Frequency of trading and ownership by transient investors seeking current profits also predict increased dividend payout. Traditional agency theory, focused on dividends as a tool for managerial discipline, is not strongly supported by the results, which rather support a narrative of short-term investor pressure on firms irrespective of investment opportunities.
... On the other hand,Andres et al. (2015) report a substantial fall in SOA for regular dividends in Germany after repurchases are legalized in 1998. They argue that the adoption of repurchases by German firms results in lower flexibility of regular dividends. ...
Article
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We study payout by UK listed companies during 1993–2018. Regular dividends remain the dominant channel, but flexible payouts (special dividends and repurchases) have grown, and they make total payout more responsive to earnings. Flexible payouts are used to augment regular dividends: few companies pay out by flexible means only, and tests indicate that they augment rather than replace regular dividends. Comparison with US evidence shows that UK companies make greater use of dividends (including specials) in relation to repurchases, and have a greater willingness to change regular dividend per share.
... See Flannery and Hankins (2013) and Moyo (2016) for justified robustness of these estimators. Following Andres et al. (2009) and Andres et al. (2015) who used a combination of fundamental and dynamic estimators successfully, this study adopted a combination of OLS, Diff GMM and Sys GMM to test the regression models. The LSDVC is superior over these estimators as it is bias-correcting and capable of providing better coefficient estimation consistency in the presence of dynamics in data sets, and hence it is used to test for robustness of estimation (Flannery & Hankins 2013;Moyo 2016). ...
Article
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Background: The dividend payout policy remains one of the key functional areas of corporate finance because it is through receipt of dividends that shareholders can share in the profits of their investments. Amongst the dividend payout theories that have been developed over the decades, the life-cycle hypothesis has received little attention in research.Aim: The aim of this study was to test the dividend life-cycle hypothesis in the South African contex.Motivation for the study: Justification for this study in the context of South Africa is that there is minimal research in this regard in emerging economies. South Africa presents a good platform for this research because it is amongst the highly regarded emerging markets and this has been confirmed by its representation in Brazil, Russia, India, China and South Africa (BRICS) countries. Hence, results in this regard would shed some light in the form of a relative representation of overall emerging markets trend.Research approach/design and method: A panel data of 119 Johannesburg Stock Exchange (JSE) listed sample companies were used to test the hypothesis during the period 2006–2015. A combination of basic and dynamic panel data estimators was used to analyse the data.Main findings: The study finds that the dividend life-cycle hypothesis is prevalent amongst South African companies. Specifically, it was observed that the considered companies pursuing growth projects paid less dividends. Furthermore, the growth companies have shown to be more aggressive in their pursuit for growth and hence are able to create more value for shareholders than value for companies.Managerial implications: Financial managers will be afforded with enhanced decision alternatives in respect of their fiduciary duties towards the shareholders in respect of maximising value.Conclusion: These results provide a mirror image of those of the developed markets and a good context for future research in the same area in an emerging economy setting.
... Owing to the different labelling of special dividends, shareholders might perceive special dividends as once-off payments and will not expect a similar payment during the next period (Andres et al. 2015:66). The flexibility hypothesis also suggests that ordinary dividends are used to disburse permanent earnings and that more flexible payout methods (special dividends and share repurchases) are used to disburse transitory earnings (Andres et al. 2015). The flexibility of special dividends could also extend to a tax context as the use of special dividends has been noted as a means of accelerating dividend declarations between different tax periods (Hanlon & Hoopes 2014). ...
Article
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Orientation: This study investigated the trend and composition of total payout distributed by companies listed on the Johannesburg Stock Exchange (JSE) over a period of tax reform. Research purpose: The aim was to investigate whether the payout methods post-2012, after the introduction of dividends tax, differed from pre-2012. Motivation for the study: Tax-related dividend literature predominantly explores the implications of differential taxes on dividends and of capital gains on dividends with a limited focus on total payout. The setting to investigate the total payout of JSE-listed companies is also unique as a result of South African tax reform. Research design, approach and method: Descriptive statistics and a mixed-model analysis of variance were employed to describe the payout methods (dividends, capital distributions, additional shares and share repurchases) in rand value and frequency of election. The population comprised of 116 JSE-listed companies for the financial reporting periods 2006–2018. Main findings: Ordinary dividends increased post-2012 whilst other payout, except for additional shares, decreased post-2012. An increase in scrip dividends (additional shares with a cash alternative) post-2012 confers flexibility to shareholders to manage their own financial needs, including tax considerations. Practical/managerial implications: The policy implication is that the increasing use of ordinary dividends as a payout method could inform future government initiatives to generate revenue or provide tax incentives for saving. Contribution/value-add: Submitted as the first article to investigate total payout of JSE-listed companies over a period of tax reform to provide evidence that payout policies adjusted based on the differential tax on dividends and capital gains.
... according to which dividends are paid by firms with higher permanent operating cash flows, while repurchases are used by firms with higher temporary cash flows (see also empirical evidence in Andres et al. (2015)). Furthermore, Brav et al. (2005) provide evidence that dividends are shielded from (temporary) firm-level shocks, while the "residual cash flow" risk is commonly passed on to shareholders though share repurchases. ...
... However, model (3) has dynamic panel form. Under this model setting, pooled OLS would result in upward biased estimators, and fixed effect method would produce downward biased estimators (Andres et al., 2015). Our research improves the regression method by using dynamic panel system generalized moment method (system GMM). ...
... The agency theory suggests that, investors in growing firms that establish effective governance mechanisms, are ready to accept a large amount of retention, and a lower level of cash dividends (Chen, Chadam, Jiang, & Zheng, 2008). After analyzing the possible impact of the share repurchases on a firm's total payout, Andres, Doumet, Fernau, and Theissen (2015) suggest that buyback is not a perfect substitute for dividends, and the dividends are assumed to be stickier then the total payouts. ...
Article
This study investigates whether the dividend policy (the decision to distribute funds, and the distribution channel preferences) of the banking sector of Pakistan is affected during any periods of domestic and global financial crisis. Using a sample of publicly listed commercial banks, between the periods of 2002 till 2015, this research document that, unlike other countries, the banks in Pakistan fail to indicate a decline in the level of funds that are distributed to the investors. Even though the importance of the other means of distribution has increased over time, a major portion of the total payout is still covered by the cash dividends. Moreover, the results of the multinomial logit model, demonstrate that the payout policy of the commercial banks listed on the PSX, is not influenced by the global financial crisis. Furthermore, the analysis reveals that more liquid, profitable, and growth oriented banks have a higher tendency to pay dividends, than the other banks that do not fall in this category. The empirical results also indicate that the signaling hypothesis is a relevant economic phenomenon. These findings provide insights to different stakeholders in developing the relevant policies needed to cope up with crisis situations, such as the current ongoing Coronavirus pandemic.
... The study of Javakhadze et al. (2014) show that Lintner (1956) dividend smoothing model works internationally, but with cross-sectional differences. Andres et al. (2015) also found partial adjustment in dividend is valid in both dividends and total payouts. Notwithstanding the small number of empirical studies which support the irrelevance hypothesis (Bernstein 1996;Black and Scholes 1974;Miller and Rock 1985), there are a number of studies showing that the dividend payout decisions of the company are influential on share prices (Al-Malkawi et al. 2010;Kadioglu et al. 2015). ...
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This study analyzes the firm-specific factors affecting the dividend payout decisions of the companies whose shares are traded on the Borsa Istanbul stock exchange. To this end, the dynamic panel regression is applied to 853 observations of yearly average of 106 companies listed on the Borsa Istanbul between 2009 and 2015. According to results from the Arellano–Bover/Blunder-Bond two-step system generalized method of moments, a statistically significant positive effect on dividend payout was found in the relationship between the dividend payout of the previous year, the company’s return on equity and the market value/book value ratio, liquidity and the company’s size. The demonstration of a positive relationship between dividend payout and return on equity supports the free cash flow hypothesis and the positive relationship with the previous year’s dividend payout ratio supports the dividend smoothing hypothesis for Turkey.
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UK companies have been making large contributions to reduce the deficits of their pension funds, and are believed to fund such contributions in part by reducing dividends. Using data from 2003 to 16, we find little evidence that large deficit-reduction contributions are associated with reductions in regular dividends, though we find some restraint in dividend increases and total payout. Most companies make large contributions when they have healthy cash flows and strong profitability, or inflows from disposals of assets. This suggests that the Pensions Regulator allows companies flexibility regarding the timing of contributions.
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This article analyzes the key patterns of the dividend policy and the problem of the “dividend puzzle” in the general context of the development of the stock market in Russia. The article consists of two parts. In the first part we summarize main research trends of dividend policy in modern economic theory (the classical Modigliani—Miller theory of dividend irrelevance, agent and signal hypotheses, the smoothing model, the catering theory, etc.). We emphasize the theoretical analysis of motivation of the largest Russian companies for profit allocation and dividend payout, based on a sample of 236 joint stock companies. Since 2012, a steady increase in dividend payments has been revealed in both private and state-owned enterprises (SOEs). The bulk of dividend payments from SOEs accounts for only 12 major companies. Along with an increase in the market value, dividends have become an important factor in the total return on shares. Under current conditions, the probability of paying dividends depends not only on the size of the company and indicators of its’ financial stability, but also on the presence of the state in the capital of companies. However, the relationship between the probability of paying dividends and state participation in the ownership structure is not universal and can be explained by specific factors that go beyond the classical dividend theories. In the second part we will analyze the patterns of stock market performance and dividend policy of the largest Russian companies, motivation for dividend payouts and special aspects of SOEs policy.
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Introduction: Human immunodeficiency virus (HIV), Tuberculosis (TB) and coronavirus disease (COVID-19) infections independently possess the ability to trigger formation of venous thromboembolism (VTE) and pulmonary embolism (PE). To the authors’ knowledge, this is the first case report describing the presence of PE in a patient with all three aforementioned infectious co-morbidities. Presentation: A patient living with HIV with virological failure secondary to defaulting antiretroviral therapy (ART) presented with hypoxia, clinical and radiological features suggestive of community-acquired pneumonia (CAP) with raised inflammatory markers and D-dimer levels. Management: She was commenced on prophylactic anticoagulation, supplemental oxygen and empirical antibiotics targeting CAP and pneumocystis jiroveci pneumonia, swabbed for COVID-19 infection and had sputa sent for Gene Xpert® TB testing. A day later, COVID-19 results returned positive and the patient was transferred to isolation and added onto dexamethasone and therapeutic anticoagulation. Sputa returned positive for mycobacterium TB a day later, and anti-tuberculosis therapy was added. She remained persistently hypoxic, with a Well’s score of 3 placing her at moderate risk for PE, which prompted for a computed tomography pulmonary angiogram (CTPA) being ordered, which demonstrated left lower lobe subsegmental PE. Warfarin was added to her regimen. She was discharged on day 18 with a therapeutic international normalised ratio (INR) and not requiring oxygen therapy. Conclusion: This scenario is relevant in low to middle-income countries. The utilisation of a raised D-Dimer in the setting of all four coexisting conditions in arriving at a definite diagnosis remains uncertain. We noted that despite our index patient being on thrombo-prophylaxis, she developed PE highlighting the need for increased vigilance in all COVID-19 patients, even those on prophylactic anticoagulation.
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Purpose This paper examines the dividend smoothing (DS) behaviour in the Gulf Cooperation Council (GCC) countries in emerging markets where the response to news and the economic environment are different from those of developed countries. Design/methodology/approach The authors examine the effect of share price informativeness on DS in the GCC markets using unbalanced panel data for a sample of 628 GCC-listed firms during 1994–2016. For the regression analysis, the hypotheses are tested using panel regressions and generalised method of moments (GMM) estimation. Findings First, the Lintner model shows that the DS degree in GCC firms is comparable to that of a developed market. Second, and importantly, the results reveal that the DS in GCC firms is sensitive to private information of share prices. Finally, the findings indicate that information asymmetry (IA) and agency-based models affect the tendency to smooth dividends in the GCC markets. Originality/value This study is the first study to measure the degree of DS using data for all GCC countries. The authors also identify other determinants of DS behaviour and test the agency and IA explanations for DS in GCC-listed firms. The findings are highly recommended to financial managers and analysts dealing with the GCC markets. This study helps financial analysts to use the share price informativeness as an indicator for the presence of the IA. The study results are beneficial to researchers in understanding the relationship between DS and share price informativeness.
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We analyze the decision to announce an open market share repurchase and the share price reaction to the announcement. We use a conditional estimation approach, which takes into account that the repurchase decision is made rationally and that, consequently, there is a potential selection bias. This approach requires a 'non-event sample' of firms that could reasonably be expected to announce a repurchase but did not. The specific institutional rules for share repurchases in Germany allow us to construct such a sample. We find that a conditional approach yields results that are qualitatively comparable but differ in detail from those obtained using a non-conditional approach. We confirm earlier findings of negative share price performance prior to the repurchase announcement and positive and significant announcement day abnormal returns. The results of our probit models are consistent with the free cash flow hypothesis and provide at least partial support for the rent extraction, signalling, and capital structure hypothesis. The results of the cross-sectional regressions provide support for the signalling hypothesis once we control for selection bias.
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This paper examines dividend payout policies for firms in six Latin American countries from 1995 to 2013. As predicted by the pecking order and trade-off models, the dividend payout is positively linked to profitability and negatively related to past indebtedness and investment opportunities. We also find that the target dividend payout ratio is positively related to governance indicators at the country level. In addition, the speed to which firms adjust their dividends to changes in earnings is lower in high governance countries in the region. Thus, firms smooth dividends more in countries with higher governance scores. We do not find evidence supporting the lifecycle theory nor illiquidity effects on dividends levels.
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We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner [1956] and Miller and Modigliani [1961]. We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen [1986]) and security valuation problems (as in Myers and Majluf [1984]) does a good job explaining the main features of observed payout policies - i.e., the massive size of corporate payouts, their timing and, to a lesser degree, their (dividend versus stock repurchase) form. We also conclude that managerial signaling motives, clientele demands, tax deferral benefits, investors’ behavioral heuristics, and investor sentiment have at best minor influences on payout policy, but that behavioral biases at the managerial level (e.g., over-confidence) and the idiosyncratic preferences of controlling stockholders plausibly have a first-order impact. Contents: 1) Introduction. 2) Basic theory: The need to distribute FCF is foundational. 3) Security valuation problems, agency costs, and optimal payout policy. 4) Corporate payouts: Scale, concentration, and earnings linkage. 5) Payouts and earnings: A closer look. 6) Are dividends disappearing? 7) Why do dividends survive? 8) Signaling and the information content of dividends. 9) Behavioral influences on payout policy. 10) Clientele effects: Transaction costs, institutional ownership, and payout policy. 11) Controlling stockholders and payout policy. 12) Taxes and payout policy. 13) The advantages of stock repurchases. 14) Conclusion: What we know about payout policy and promising areas for future research. Appendix: Microsoft’s dividend and stock buyback plans. References.
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Based on a large panel data set of listed German firms we analyze the corporate payout behavior around the German Tax Reduction Act 2001 (GTRA). The GTRA considerably changed the tax preference of shareholders and consequently affected the attractiveness of different forms of payout. Using the tax reform as an exogenous source of variation we examine whether payout decisions are driven by corporate insiders or by influential shareholders. We find that the tax reform reduced both the propensity to pay out dividends as well as their size. However, we find that in those firms where management board members hold substantial stakes, dividend payout behavior has not changed in the aftermath of the GTRA enactment. This effect does not depend on the existence of other influential shareholders, as for instance institutional shareholders. Hence, we conclude that the dividend policy is strongly driven by corporate insiders.
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In this paper, we develop new insights about the dynamics of corporate dividend policy by performing the natural experiment of comparing corporate dividend policies in Hong Kong and the U.S., two economies where the tax regime and equity ownership structure are significantly different. Our empirical results can be summarized as follows. First, a test of the Lintner model reveals that the extent of dividend smoothing by firms in Hong Kong is significantly less than those in the U.S. Second, the signaling effects of dividend changes on stock returns are stronger in the U.S. compared to those in Hong Kong. Third, our logit analysis of the determinants of dividend changes indicates that, while the lagged dividend yield significantly affects dividend changes in both countries in the same fashion, prior year stock returns have opposite effects on dividend changes in the two countries. Finally, the extent of dividend smoothing is not systematically related to blockholder equity ownership in either country. Overall, our results suggest that, compared to U.S. firms, Hong Kong firms pursue a more flexible dividend policy commensurate with earnings, and that the differences between the dividend policies of firms in the two countries are consistent with the signaling implications of the differences in the tax regime across the two countries.
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In the hope that it may help to overcome these obstacles to effective empirical testing, this paper will attempt to fill the existing gap in the theoretical literature on valuation. We shall begin, in Section I , by examining the effects the effects of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty. Still within this convenient analytical framework we shall go on in Section II and III to consider certain closely related issues that appear to have been responsible for considerable misunderstanding of the role of dividend policy. In particular, Section II will focus on the longstanding debate about what investors "really" capitalize when they buy shares; and Section III on the much mooted relations between price, the rate of growth of profits, and the rate of dividends per share. Once these fundamentals have been established, we shall proceed in Section IV to drop the assumption of certainty and to see the extent to which the earlier conclusions about dividend policy must be modified. Finally, in Section V , we shall briefly examine the implications for the dividend policy problem of certain kinds of market imperfections.
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German firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i) published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down.
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Empirical studies of open-market share repurchases in the U.S. typically find a mean abnormal return around the announcement day of about 3%. In Germany share repurchases were highly restricted before May 1998. Since then firms have repurchased shares in the open market more than 250 times. Since the institutional framework differs considerably from the U.S., an analysis of the German data can give important insights. Gerke/Fleischer/Langer (2002), using a larger data set and more carefully chosen procedures than prior studies on German repurchase announcements, presented several puzzling results. We confirm that in Germany the announcement day return is considerably higher than in the U.S. and that this return is higher in Germany’s “Neuer Markt” than in the traditional market segments. We cannot confirm their findings about bull and bear markets. When we look at subsamples based on the reasons for the repurchase stated in the announcements, we obtain results which are completely different from the results of Gerke/Fleischer/Langer (2002).
Article
Since the “Control and Transparency in Business Act” (KonTraG) came into effect on 1 May 1998, German firms are permitted to repurchase their own shares. Buy backs gain increasing popularity in Germany and more than a hundred corporations have already been engaged in repurchase programs. However, it is still an unanswered empirical question how the German capital market reacts to share repurchases. Therefore, it will be analyzed employing an event study whether or not there are any excess returns associated with share repurchase announcements. In summary, the evidence indicates that there is a highly significant market reaction on the announcement day and the following day. The cumulative average excess return adds up to 4–5%. Furthermore, trading volumes of repurchasing firms are significantly higher in the announcement period. The capital market reaction is consistent with the dividend substitution hypothesis, and is strongly influenced by the prevailing capital structure.
Article
This paper measures the growth in open market stock repurchases and the manner in which stock repurchases and dividends are used by U.S. corporations. Stock repurchases and dividends are used at different times from one another, by different kinds of firms. Stock repurchases are very pro-cyclical, while dividends increase steadily over time. Dividends are paid by firms with higher “permanent” operating cash flows, while repurchases are used by firms with higher “temporary”, non-operating cash flows. Repurchasing firms also have much more volatile cash flows and distributions. Finally, firms repurchase stock following poor stock market performance and increase dividends following good performance. These results are consistent with the view that the flexibility inherent in repurchase programs is one reason why they are sometimes used instead of dividends.
Article
This study investigates the motives and valuation effects of share repurchase announcements of German firms during the 1998–2008 period, addressing the question why initial public offering (IPO) firms repurchase shares soon after going public. While our focus is on IPO firms, we also examine the impact of firm size by differentiating between IPO and established DAX/MDAX firms and by analyzing the source of surplus cash holdings, that is, either from equity issuances or from operating cash flows. We further explore the impact of the regulatory environment. Our empirical analysis reveals significant differences between the IPO and DAX/MDAX subsamples regarding their repurchase motives, stock price performance, and explanatory factors. Standard corporate payout theories are essential in explaining the different valuation effects. Our empirical analysis suggests agency costs of free cash flow as the main reason for the observed valuation effects of both IPO and DAX/MDAX firms, yet for different reasons. While DAX/MDAX firms continuously generate high operating cash flows before and after repurchasing shares, IPO firms exhibit low operating cash flows during the entire period but large surplus cash holdings due to the mandatory equity issuance at their public offering. Overall, the repurchase decisions of IPO firms are best explained by the agency costs of cash holdings and the unique rules and regulations of the German stock exchange.
Article
Starting with the “partial adjustment model” suggested by Lintner [10, 11], this paper examines the dividend policies of individual firms. The Lintner model, in which the change in dividends from year t-1 to year t is regressed on a constant, the level of dividends for t-1, and the level of profits for t, explains dividend changes for individual firms fairly well relative to other models tested. But a model in which the constant term is suppressed and the level of earnings for t-1 is added, provides the best predictions of dividends on a year of data not used in fitting the regressions.Though the dividend policy of individual firms is certainly a subject of economic interest, perhaps much of the novelty of the paper is methodological: specifically, the way in which a validation sample, simulations, and prediction tests are used to investigate results obtained from a pilot sample. To avoid spurious results that could follow from the extensive data-dredging involved in finding “good-fitting” dividend models, only half of the available firms are used in the original search, the remaining firms serving as a check on the findings. In addition, since the models tested are autoregressive, their statistical properties cannot always be evaluated analytically. This problem is surmounted to some extent by using simulations to study the results and conclusions obtained from the data for individual firms. The novelty in this use of simulations is that they are directed towards checking specific empirical results rather than establishing the properties of some general model. Finally, the conclusions drawn from the regression analysis and from the simulations are again checked by using the various models to predict dividend changes for a new year of data. The coherence in the results obtained with these various tests justifies strong conclusions with respect to the “best” dividend models and their properties.
Article
We examine time-series evidence of dividend polices in several developed financial markets over the period 1989-2002. Consistent with trends in the U.S., our evidence indicates a declining propensity to pay dividends in Canada, the U.K., Germany, France, and Japan. This decline cannot be explained by the changing composition of publicly traded firms in each country. In addition, we test implications of the catering explanation for the declining propensity to pay dividends, but fail to find robust support for the hypothesis. We argue that both our evidence and prior evidence supporting the catering hypothesis is consistent with an agency cost explanation for dividends.
Article
We develop a dynamic agency model where payout, investment and financing decisions are made by managers who attempt to maximize the rents they take from the firm, subject to a capital market constraint. Managers smooth payout in order to smooth their flow of rents. Total payout (dividends plus net repurchases) follows Lintner's (1956) target-adjustment model. Payout smooths out transitory shocks to current income and adjusts gradually to changes in permanent income. Smoothing is accomplished by borrowing or lending. Payout is not cut back to finance capital investment. Risk aversion causes managers to underinvest, but habit formation mitigates the degree of underinvestment.
Article
This paper studies the impact of the concentration of control, the type of controlling shareholder and the dividend tax preference of the controlling shareholder on dividend policy for a panel of 220 German firms over 1984-2005. While the concentration of control does not have an effect on the dividend payout, there is strong evidence that the type of controlling shareholder matters as family controlled firms have high dividend payouts whereas bank controlled firms have low dividend payouts. However, there is no evidence that the tax preference of the large shareholder has an impact on the dividend decision.
Article
We document the cross-sectional properties of corporate dividend-smoothing policies and relate them to extant theories. We find that younger, smaller firms, firms with low dividend yields and more volatile earnings and returns, and firms with fewer and more disperse analyst forecasts smooth less. Firms that are cash cows, with low growth prospects, weaker governance, and greater institutional holdings, smooth more. We also document that dividend smoothing has steadily increased over the past 80 years, even before firms began using share repurchases in the mid-1980s. Taken together, our results suggest that dividend smoothing is most common among firms that are not financially constrained, face low levels of asymmetric information, and are most susceptible to agency conflicts. These findings provide challenges and guidance for the developing theoretical literature.
The proportion of U.S. firms paying dividends drops sharply during the 1980s and 1990s. Among NYSE, AMEX, and Nasdaq firms, the proportion of dividend payers falls from 66.5% in 1978 to only 20.8% in 1999. The decline is due in part to an avalanche of new listings that tilts the population of publicly traded firms toward small firms with low profitability and strong growth opportunities—the timeworn characteristics of firms that typically do not pay dividends. But this is not the whole story. The authors' more striking finding is that, no matter what their characteristics, firms in general have become less likely to pay dividends. The authors use two different methods to disentangle the effects of changing firm characteristics and changing propensity to pay on the percent of dividend payers. They find that, of the total decline in the proportion of dividend payers since 1978, roughly one-third is due to the changing characteristics of publicly traded firms and two-thirds is due to a reduced propensity to pay dividends. This lower propensity to pay is quite general—dividends have become less common among even large, profitable firms. Share repurchases jump in the 1980s, and the authors investigate whether repurchases contribute to the declining incidence of dividend payments. It turns out that repurchases are mainly the province of dividend payers, thus leaving the decline in the percent of payers largely unexplained. Instead, the primary effect of repurchases is to increase the already high payouts of cash dividend payers.
Article
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371-1395); Arellano and Bond (1991, Review of Economic Studies 58: 277-297); Arellano and Bover (1995, Journal of Econometrics 68: 29-51); and Blundell and Bond (1998, Journal of Econometrics 87: 115-143), are increasingly popular. Both are general estimators designed for situations with "small T , large N" panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano-Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use. Copyright 2009 by StataCorp LP.
Article
This paper reviews econometric methods for dynamic panel data models, and presents examples that illustrate the use of these procedures. The focus is on panels where a large number of individuals or firms are observed for a small number of time periods, typical of applications with microeconomic data. The emphasis is on single equation models with autoregressive dynamics and explanatory variables that are not strictly exogenous, and hence on the Generalised Method of Moments estimators that are widely used in this context. Two examples using firm-level panels are discussed in detail: a simple autoregressive model for investment rates; and a basic production function.
Article
This paper examines common stock returns and dividend and earnings patterns surrounding specially designated dividends labeled by management as ‘extra’, ‘special’ or ‘year-end’ and compares them to those surrounding regular (unlabeled) dividend increases. The results support the notion that management uses the labeling of dividend increases to convey information to the market about the future potential of the firm. Unlabeled increases appear to contain the most positive information. Contrary to the sometimes suggested view, specially designated dividends appear to convey positive information about future dividends and earnings beyond that relating to the current period.
Article
This paper documents that (1) special dividends were once commonly paid by NYSE firms, but are now rarely paid; (2) firms typically paid specials almost as predictably as they paid regular dividends; (3) despite the dramatic overall decline in specials, the incidence of very large specials increased in recent years; and (4) special dividends were not displaced by stock repurchases. Most plausibly, small specials disappeared because their predictability made them close substitutes for regular dividend signals, while large specials survived because their sheer size automatically differentiates them from regulars.
Article
We hypothesize that firms choose dividend increases to distribute relatively permanent cash-flow shocks and repurchases to distribute more transient shocks. As predicted, we find that post-shock cash flows of dividend increasing firms exhibit less reversion to pre-shock levels compared with repurchasing firms. We also examine whether the stock market uses the announcement of the payout method to update its beliefs about the permanence of cash-flow shocks. Controlling for payout size and the market's expectation about the permanence of the cash-flow shock, the stock price reaction to dividend increases is more positive than the reaction to repurchases.
Article
This paper examines how the relation between earnings and payout policy has evolved over the last three decades. Three principal groups of payers have emerged: firms that pay dividends and make regular repurchases, firms that make regular repurchases, and firms that make occasional repurchases. Firms that only pay dividends are largely extinct. Repurchases are increasingly used in place of dividends, even for firms that continue to pay dividends. While other factors help explain the timing of repurchases, the overall level of repurchases is fundamentally determined by earnings. The results suggest that repurchases are now the dominant form of payout.
Article
Estimation of the dynamic error components model is considered using two alternative linear estimators that are designed to improve the properties of the standard first-differenced GMM estimator. Both estimators require restrictions on the initial conditions process. Asymptotic efficiency comparisons and Monte Carlo simulations for the simple AR(1) model demonstrate the dramatic improvement in performance of the proposed estimators compared to the usual first-differenced GMM estimator, and compared to non-linear GMM. The importance of these results is illustrated in an application to the estimation of a labour demand model using company panel data.
Article
We examine cash dividends and share repurchases from 1989 to 2005 in the 15 nations that were members of the European Union before May 2004. As in the United States, the fraction of European firms paying dividends declines, while total real dividends paid increase and share repurchases surge. We also show that financial reporting frequency is associated with higher payout, and that privatized companies account for almost one-quarter of total cash dividends and share repurchases. Our regression analyses indicate that increasing fractions of retained earnings to equity do not increase the likelihood of cash payouts, whereas company age does.
Article
this paper and John Ham, David Hendry and members of the econometrics group at the London School of Economics for their useful comments on an earlier draft
Article
This article offers a new explanation of the dividend puzzle, based upon a model in which firms signal profitability by distributing cash to shareholders. I assume that dividends and repurchases are identical, except that dividends are taxed more heavily. Nevertheless, I demonstrate that under certain plausible conditions, corporations will pay dividends. Indeed, some firms will actually pay dividends and then retrieve a portion of these payments by issuing new equity (perhaps through a dividend reinvestment plan), despite the fact that this appears to create gratuitous tax liabilities. In addition to providing an explanation for the dividend puzzle, I derive a number of strong results concerning corporate payout decisions and government tax policy. Some of these results are surprising. For example, the relationship between repurchases and firm quality is hump-shaped. Moreover, despite the fact that a higher dividend tax rate depresses dividend payments, it does not affect either government revenue or welfare.
Article
This paper assumes that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains. It is shown that under these conditions, such dividends function as a signal of expected cash flows. By structuring the model so that finite-lived investors turn over continuing projects to succeeding generations of investors, we derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons.
Article
Initiations and omissions of dividend payments are important changes in corporate financial policy. This paper investigates the market reaction to such changes in terms of prices, volume, and changes in clientele. Consistent with the prior literature we find that short run price reactions to omissions are greater than for initiations (-7.0% vs. +3.4% three day return). However, we show that, when we control for the change in the magnitude of dividend yield (which is larger for omissions), the asymmetry shrinks or disappears, depending on the specification. In the 12 months after the announcement (excluding the event calendar month), there is a significant positive market-adjusted return for firms initiating dividends of +7.5% and a significant negative market-adjusted return for firms omitting dividends of -11.0%. However, the post dividend omission drift is distinct from and more pronounced than that following earnings surprises. A trading rule employing both samples (long in initiation stocks and short in omission stocks) earns positive returns in 22 out of 25 years. Although these changes in dividend policy might be expected to produce shifts in clientele, we find little evidence for such a shift. Volume increases, but only slightly and briefly, and there are no important changes in institutional ownership.
Article
This paper shows that abnormal stock price returns around the date of open market repurchase announcements are four times higher in Germany than in the US (12% versus 3%). We hypothesize that this observation can be explained by national differences in repurchase regulations. Our empirical evidence indicates that German managers primarily buy back shares to signal an undervaluation of their firm. We demonstrate that the stringent repurchase process prescribed by German law attributes a higher credibility to undervaluation signals than lax US regulations do and thereby corroborate our hypothesis.
Article
The higher taxation of dividends in the United States gave rise to theories that explain why companies pay dividends. Tax-based signaling models propose that the higher tax on dividends is a necessary condition to make them informative about companies' values. In Germany, where dividends are not tax-disadvantaged and in fact are taxed lower for most investor classes, these models predict that dividends are not informative. However, the authors find that the stock price reaction to dividend news in Germany is similar to that found in the United States. This suggests other reasons, beyond taxation, that make dividends informative. Copyright 1997 by American Finance Association.
Article
This article investigates market reactions to initiations and omissions of cash dividend payments. Consistent with prior literature, the authors find that the magnitude of short-run price reactions to omissions are greater than for initiations. In the year following the announcements, prices continue to drift in the same direction, though the drift following omissions is stronger and more robust. This postdividend initiation/omission price drift is distinct from and more pronounced than that following earnings surprises. A trading rule employing both samples earns positive returns in twenty-two out of twenty-five years. The authors find little evidence for clientele shifts in either sample. Copyright 1995 by American Finance Association.
Article
The paper measures the growth in open-market stock repurchases and the manner in which stock repurchases and dividends are used in U.S. corporations. We find that aggregate repurchases have increased dramatically over this period: the number and value of repurchase program announcements has grown from 115 and $15.4 billion in 1985 to 755 and $115 billion in 1996. Actual share repurchases have grown from approximately $8.8 billion in 1985 to over $63 billion in 1996. These repurchases represent an economically important source of payouts, and are responsible for much of the variation in aggregate payouts. Nonetheless they are still small relative to the $142 billion in dividends paid by industrial firms listed on Compustat in 1996. Stock repurchases and dividends are used at different times from one another, by different kinds of firms. Stock repurchases are very pro-cyclical, while dividends increase steadily over time. Dividends are paid by firms with higher "permanent" operating cash flows, while repurchases are used by firms with higher "temporary", non-operating cash flows. Repurchasing firms also have much more volatile cash flows and distributions. These results are consistent with the view that the flexibility inherent in repurchase programs is one reason why they are sometimes used instead of dividends.
Article
This paper studies estimators that make sample analogues of population orthogonality conditions close to zero. Strong consistency and asymptotic normality of such estimators is established under the assumption that the observable variables are stationary and ergodic. Since many linear and nonlinear econometric estimators reside within the class of estimators studied in this paper, a convenient summary of the large sample properties of these estimators, including some whose large sample properties have not heretofore been discussed, is provided.
Article
[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed with wide income spreads allocated among few consumers whereas the second one is highly populated however not as wealthy. Among the results, we show that a low transportation costs induces the firm to exploit size effects through locating in the most populated region. Moreover, a small transport cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. [fre] Cet article d�veloppe une statique comparative de l'impact de diff�rents sc�narios d'investissement (projet d'infrastructure conduisant � une baisse mod�r�e ou � une forte baisse du co�t de transport inter-r�gional) sur le choix de localisation d'une entreprise en situation de monopole, au sein d'un espace int�gr� compos� de deux r�gions aux populations et revenus h�t�rog�nes. La premi�re r�gion, faiblement peupl�e, pr�sente de fortes disparit�s de revenus, tandis que la seconde, plus homog�ne en termes de revenu, repr�sente un march� potentiel plus �tendu. On montre que l'h�t�rog�n�it� des revenus constitue la force dominante du mod�le lorsque le sc�nario d'investissement privil�gi� par les politiques publiques conduit � des gains substantiels du point de vue du co�t de transport entre les deux r�gions. L'effet de richesse, lorsqu'il est associ� � une forte disparit� des revenus, n'incite pas l'entreprise � exploiter son pouvoir de march� au d�triment de la r�gion l
Article
We survey 384 financial executives and conduct in depth interviews with an additional 23 to determine the factors that drive dividend and share repurchase decisions. Our findings indicate that maintaining the dividend level is on par with investment decisions, while repurchases are made out of the residual cash flow after investment spending. Perceived stability of future earnings still affects dividend policy as in Lintner (1956). However, fifty years later, we find that the link between dividends and earnings has weakened. Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase EPS. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele. In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role. This is the final working paper version of our 2005 publication in the Journal of Financial Economics.
Article
We show that repurchases have not only became an important form of payout for U.S. corporations, but also that firms finance their share repurchases with funds that otherwise would have been used to increase dividends. We find that young firms have a higher propensity to pay cash through repurchases than they did in the past and that repurchases have become the preferred form of initiating a cash payout. Although large, established firms have generally not cut their dividends, they also show a higher propensity to pay out cash through repurchases. These findings indicate that firms have gradually substituted repurchases for dividends. Our results also suggest that before 1983, regulatory constraints inhibited firms from aggressively repurchasing shares. Copyright The American Finance Association 2002.
Article
A signalling equilibrium with taxable dividends is identified. In this equilibrium, corporate insiders with more valuable private information optimally distribute larger dividends and receive higher prices for their stock whenever the demand for cash by both their firm and its current stockholders exceeds its internal supply of cash. In equilibrium, many firms distribute dividends and simultaneously issue new stock, while other firms pay no dividends. Because dividends reveal all private information not conveyed by corporate audits, current stockholders capture in equilibrium all economic rents net of dissipative signalling costs. Both the announcement effect and the relationship between dividends and cum-dividend market values are derived explicitly.
Article
We extend the standard finance model of the firm's dividend/investment/financing decisions by allowing the firm's managers to know more than outside investors about the true state of the firm's current earnings. The extension endogenizes the dividend (and financing) announcement effects amply documented in recent research. But once trading of shares is admitted to the model along with asymmetric information, the familiar Fisherian criterion for optimal investment becomes time inconsistent: the market's belief that the firm is following the Fisher rule creates incentives to violate the rule. We show that an informationally consistent signalling equilibrium exists under asymmetric information and the trading of shares that restores the time consistency of investment policy, but leads in general to lower levels of investment than the optimum achievable under full information and/or no trading. Contractual provisions that change the information asymmetry or the possibility of profiting from it could eliminate both the time inconsistency and the inefficiency in investment policies, but these contractual provisions too are likely to involve dead-weight costs. Establishing which route or combination of routes serves in practice to maintain consistency remains for future research.
Article
The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows--more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs of free cash flows, 2) how debt can substitute for dividends, 3) why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidation-motivated takeovers, 4) why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil, and 5) why bidders and some targets tend to perform abnormally well prior to takeover.
The empirical relationship between dividends and earnings in Germany
  • U Behm
  • H Zimmermann
Behm, U., Zimmermann, H., 1993. The empirical relationship between dividends and earnings in Germany. Zeitschrift für Wirtschafts-und Sozialwissenschaften 113, 225-254.
  • H Deangelo
  • L Deangelo
  • D J Skinner
DeAngelo, H., DeAngelo, L., Skinner, D.J., 2008. Corporate payout policy. Foundations and Trends in Finance 3, 95-287.
Kurseffekte durch Aktienrückkäufe-eine empirische Untersuchung für den deutschen Kapitalmarkt
  • W Gerke
  • J Fleischer
  • M Langer
Gerke, W., Fleischer, J., Langer, M., 2002. Kurseffekte durch Aktienrückkäufe-eine empirische Untersuchung für den deutschen Kapitalmarkt. In: Börsig, C., Coenenberg, A. G. (Eds.), Bewertung von Unternehmen: Strategie-Markt-Risiko, Kongress-Dokumentation 56.
Aktienrückkäufe in Deutschland: Renditeeffekte und tatsächliche Volumina
  • U Seifert
Seifert, U., 2006. Aktienrückkäufe in Deutschland: Renditeeffekte und tatsächliche Volumina. Deutscher Universitäts-Verlag, Wiesbaden.