Yes, dividends are disappearing: Worldwide evidence

This study examines the patterns in payout policies worldwide. Utilizing data from a sample of more than 17,000 companies from 33 different countries, we find evidence in support of a significant worldwide decline in the propensity to pay dividends. Most of the decline is due to the payout policies of smaller and less profitable firms with comparatively more investment opportunities. We find that larger firms, those with higher profitability, and firms with low growth opportunities have a greater propensity to pay dividends. The proportion of dividend payers varies substantially across industries as well. However, the proportion of firms paying dividends has declined over time, even after firms’ characteristics have been controlled for. Moreover, aggregate dividends are highly concentrated in that they are paid only by a small group of firms. Our findings indicate that there has been a significant decline in the average dividend payout ratios over the years. The decline in the mean dividend payout ratios as well as the proportion of payers is much more pronounced in civil law countries.     

Dividend Payouts and Corporate Governance Quality: An Empirical Investigation

Motivated by agency theory, we investigate how a firm's overall quality of corporate governance affects its dividend policy. Using a large sample of firms with governance data from The Institutional Shareholder Services, we find that firms with stronger governance exhibit a higher propensity to pay dividends, and, similarly, dividend payers tend to pay larger dividends. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic managers. We employ the two‐stage least squares approach to cope with possible endogeneity and still obtain consistent results. Our results are important as they show that corporate governance quality does have a palpable impact on critical corporate decisions such as dividend policy.     

Nonnegotiable shares, controlling shareholders, and dividend payments in China

China has some unique institutional features. For example, the shares of listed firms are segmented into negotiable and nonnegotiable ones. The controlling shareholders, usually connected to the government, hold nonnegotiable shares. We examine how these institutional features affected cash dividend payments in China during the period 1994-2006. We find that dividend payments are positively associated with the proportion of nonnegotiable shares in a firm and the proportion of nonnegotiable shares held by the controlling shareholder; moreover, the 2001 China Securities Regulatory Commission stipulation requiring cash dividend payments does not benefit negotiable shareholders. However, we also find that dividend payments are downside flexible, and controlling shareholders cannot force firms to pay or to pay more dividends when firms' earnings decline significantly. The conventional factors, especially profitability or the capability to pay, still play an important role in determining the dividend policy. The propensity to pay and the payout ratio in China are not high compared to those of other countries.     

The dividend month premium

We find an asset pricing anomaly whereby companies have positive abnormal returns in months when they are predicted to issue a dividend. Abnormal returns in predicted dividend months are high relative to other companies and relative to dividend-paying companies in months without a predicted dividend, making risk-based explanations unlikely. The anomaly is as large as the value premium, but less volatile. The premium is consistent with price pressure from dividend-seeking investors. Measures of liquidity and demand for dividends are associated with larger price increases in the period before the ex-day (when there is no news about the dividend) and larger reversals afterward.     

The evolving relation between dividends and flexible payouts: A different evolution

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.     

Family control,institutional environment and cash dividend policy: Evidence from China

Using a sample of 1486 Chinese A-share listed companies for the period 2004–2008, this study empirically tests the impact of family control, institutional environment and their interaction on the cash dividend policy of listed companies. Our results indicate that (1) family firms have a lower cash dividend payout ratio and propensity to pay dividends than non-family firms; (2) a favorable regional institutional environment has a significant positive impact on the cash dividend payout ratio and propensity to pay dividends of listed companies; and (3) the impact of the regional institutional environment on cash dividends is stronger in family firms than in non-family firms. Somewhat surprisingly, we find that controlling family shareholders in China may intensify Agency Problem I (the owner–manager conflict) rather than Agency Problem II (the controlling shareholder–minority shareholder conflict), and thus have a significant negative impact on cash dividend policy. In contrast, a favorable regional institutional environment plays a positive corporate governance role in mitigating Agency Problem I and encouraging family firms to pay cash dividends.     

Cash holdings in private firms

Evidence from a wide sample of Italian private firms shows that cash holdings are significantly related with smaller size, higher risk and lower effective tax rates, therefore supporting predictions from the trade-off model. More cash is also held by firms with longer cash conversion cycles and lower financing deficits, as predicted by the financing hierarchy theory. Reported evidence also shows that dividend payments are associated with more cash holdings, and both bank debt and net working capital represent good cash-substitutes. When controlling for macroeconomic and industry factors, some variables lose their significance, but the general findings are confirmed. Finally, cash-rich companies are found to be more profitable, to pay more dividends and to invest more in a medium-term future horizon.     

Dividends for tunneling in a regulated economy: The case of China

Some Chinese listed companies pay out high dividends, despite the weak legal and institutional pressure on them to mitigate agency problems by paying dividends. We conjecture that such a phenomenon is caused by the differential pricing for tradable and non-tradable shares during the IPO of these listed companies. Such companies might use high-dividend payments to divert proceeds from an IPO or rights issue to controlling shareholders' pockets. The empirical results support our hypotheses, showing that companies with more differential pricing in the IPO, a recent IPO or rights issue, or more concentrated ownership tend to pay more dividends. Similarly, companies that are ultimately owned by the government tend to pay more dividends. Furthermore, a dividend increase accompanied by large IPO price discounts, a recent-year rights issue, an ROE qualified for rights issue, or great dividend variation is associated with more negative stock returns than other types of dividend increases. These findings indicate that dividends are not used purely for signaling or distributing free cash flows in China. Instead, dividends might be used by the controlling shareholders to engage in tunneling.     

The Informativeness of Dividends and Associated Tax Credits

This paper investigates the informativeness of dividends and the associated tax credits with respect to earnings persistence. After confirming that dividend‐paying firms have more persistent earnings than non‐dividend‐paying firms, we show that the taxation status of the dividend is also important. Firms that pay dividends with a full tax credit attached have significantly more persistent earnings than firms that pay dividends which carry no associated tax credit. Consistent with higher levels of tax credits identifying more mature firms, those paying dividends with full tax credits have significantly less persistent losses than firms that pay dividends with only partial tax credits. Further, market pricing tests confirm that the incremental information in dividends and tax credits contributes to reductions in market mispricing of the persistence of earnings and earnings components. Our results are robust to alternative model specifications and controlling for dividend size and firm age.     

The Influence of a Credit Rating Change on Dividend and Investment Policy Interactions

We examine firms’ alterations in dividend and investment activities following credit rating changes. We find that downgraded firms reduce both dividends and investments more than no‐rating‐change firms. However, a silver lining of this doubly negative impact for shareholders is an increase in investment efficiency in firms that are most likely to overinvest. For upgraded firms, investments increase, but dividend outlays do not, compared to firms without rating changes. Our findings of asymmetric dividend stickiness and symmetric investment changes on a credit shock suggest that dividends and investments should not always be considered competing uses of funds.     

Independent directors and the propensity to pay dividends

Using data from 944 public companies in 2006, I examine how a firm's propensity to pay dividends is related to (i) board independence and (ii) independent directors' tenure, number of board seats (busy) and equity incentive compensation. After controlling for the effects of traditional economic, CEO entrenchment and ownership determinants of the propensity to pay dividends, I find evidence of a positive association between the propensity to pay and (i) board independence and (ii) director tenure, and a negative association between the propensity to pay and (i) busy directors and (ii) greater equity incentive compensation in the director pay structure. I find consistent results when the decision is to pay cash dividends or repurchase shares. In further tests, I find that equity incentive compensation in the independent director pay structure is the most pervasive determinant across other dividend measures such as dividend payout, total payout and repurchases. Overall, the findings suggest that the characteristics of independent directors are important determinants of the payout policy. The results also suggest that future corporate governance research could benefit from incorporating characteristics of independent directors rather than limiting governance measures to board independence especially when recent empirical evidence (Linck et al., 2008, 2009) shows convergence, and therefore, narrowing variation in the proportion of outsiders and insiders on a board.     

Does political economy reduce agency costs? Some evidence from dividend policies around the world

This study shows that firms in proportional-electoral countries pay out lower dividends and that the correlation between a firm's growth potential and dividend payout ratio is weaker in proportional-electoral countries. However, firms in proportional-electoral countries that cross-list in majoritarian system countries, tend to pay out higher dividends and the negative relation between growth potential and dividend payout tend to be stronger than their peers that do not cross-list. For a few countries that changed their electoral system towards a more proportional system, we observe a decrease in dividend payout ratio and a weaker relation between growth and dividends after the change. Overall these results indicate that a country's political system affects the severity of agency problems. Further, the effect of legal origin on dividend policy reverses once we include the political economy variables in the regressions. We also document that the electoral system not only affects the amount of dividends paid by a firm but also the form of payment.     

Dividend Policy in Switzerland

The paper examines dividend policy for a sample of Swiss companies. Several factors that determine cross-sectional variations in dividend policy – such as profitability, growth opportunities, and riskiness – are identified. Price volatility seems to stand out as the most significant factor. Looking at the relationship between dividends and earnings over time, dividend changes are more closely linked to past and current rather than future net income growth. However, they do confirm a persistent shift in the level of earnings. There is also a significant relationship between losses and dividend cuts. These findings suggest that it is the managers’ reluctance to cut dividends that gives informational content to dividend changes.     

Dividend signaling under economic adversity: Evidence from the London Stock Exchange

The signaling or information content hypothesis is amongst the most prominent theories attempting to explain dividend policy decisions. However, no research has, to date, examined the information content of dividends in conjunction with generalized economic adversity. With the majority of the western economies facing the tough reality of the economic recession since late 2007–early 2008, we focus on the possibility of asymmetrical dividend signaling effects between periods of stability and economic adversity. Using data from the London Stock Exchange (LSE), where earnings and dividend news are released simultaneously, we test the dividend signaling hypothesis and the interaction of earnings and dividends under both steady and adverse economic conditions. We document positive and significant average abnormal stock price returns around the dividend/earnings announcements. We also find a significant interaction between economic conditions and the information content of dividends. After testing the dividend signaling hypothesis under both stable and recessionary economic conditions we find that dividends have less information content than earnings in periods of growth and stability, but more in periods of economic adversity.     

Why do firms pay dividends? International evidence on the determinants of dividend policy

In the US, Canada, UK, Germany, France, and Japan, the propensity to pay dividends is higher among larger, more profitable firms, and those for which retained earnings comprise a large fraction of total equity. Although there are hints of reductions in the propensity to pay dividends in most of the sample countries over the 1994–2002 period, they are driven by a failure of newly listed firms to initiate dividends when expected to do so. Dividend abandonment and the failure to initiate by existing nonpayers are economically unimportant except in Japan. Moreover, in each country, aggregate dividends have not declined and are concentrated among the largest, most profitable firms. Finally, outside of the US there is little evidence of a systematic positive relation between relative prices of dividend paying and non-paying firms and the propensity to pay dividends. Overall, these findings cast doubt on signaling, clientele, and catering explanations for dividends, but support agency cost-based lifecycle theories.     

Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory

Consistent with a life-cycle theory of dividends, the fraction of publicly traded industrial firms that pay dividends is high when retained earnings are a large portion of total equity (and of total assets) and falls to near zero when most equity is contributed rather than earned. We observe a highly significant relation between the decision to pay dividends and the earned/contributed capital mix, controlling for profitability, growth, firm size, total equity, cash balances, and dividend history, a relation that also holds for dividend initiations and omissions. In our regressions, the mix of earned/contributed capital has a quantitatively greater impact than measures of profitability and growth opportunities. We document a massive increase in firms with negative retained earnings (from 11.8% of industrials in 1978 to 50.2% in 2002). Controlling for the earned/contributed capital mix, firms with negative retained earnings show virtually no change in their propensity to pay dividends from the mid-1970s to 2002, while those whose earned equity makes them reasonable candidates to pay dividends have a propensity reduction that is twice the overall reduction in Fama and French [2000, Journal of Financial Economics 76, 549–582]. Finally, our simulations show that, if well-established firms had not paid dividends, their cash balances would be enormous and their long-term debt trivial, thus granting extreme discretion to managers of these mature firms.     

中美资本市场财富效应比较研究

本文从股利支付和资本利得的角度对比分析了中美资本市场财富效应水平,并对其影响因素展开分析。研究发现,我国资本市场财富效应不够显著,A股上市公司虽然具有较高的股利支付倾向,但股利支付率和资本利得属性较弱;股利支付行为迎合监管动机较强,融资分红特征明显,股票股利支付行为具有高送转特征;资本市场估值中枢下移,指数波动性较高,资本利得属性较差。美股上市公司虽然股利支付意愿不及A股,但股利支付率和资本利得属性较强,且上市公司不存在明显的融资分红倾向。基于此,本文从控股股东属性、企业生命周期、管理层侵占行为、宏观经济和资本市场环境四个维度对A股市场财富效应水平展开深入探讨,并从提升公司质量、改善盈利能力、调整投资者结构、加强市场建设、优化股利监管制度五方面提出了改善我国资本市场财富效应的政策建议。     

强制性分红:压力下移与盈余管理——基于央企控股上市公司的经验证据

国有资本收益上缴制度是一项强制性分红制度,这种政策带来的强制性分红压力会沿着企业控制层级往下转移.本文实证检验了强制性分红对中央企业盈余管理行为的影响.研究发现,中央企业会通过减少盈余的方式规避该政策带来的压力,尤其是,金子塔层级越低的中央企业这种规避行为越明显.进一步,中央企业面临强制性分红压力与业绩考核压力时,更注重业绩考核的影响.本研究有助于更加全面、准确地评价国有资本收益分配制度的实施效果,为政策优化提供经验证据.     

Payout Policy with Legal Restrictions

We hypothesize that firms that face limitations on debt may use increased dividend payments to mitigate the free cash flow problem. Limitations on debt are implicit in state laws that restrict the firm from making payouts when the asset‐to‐liability ratio is low. We find that: 1) firms incorporated in states with stricter payout restrictions pay more dividends, 2) the probability of paying dividends or repurchasing shares decreases as firms approach a binding payout constraint, and 3) bonding with dividends is less prevalent with increased managerial equity holdings. In addition, antitakeover and director liability laws have a less consistent effect on payout policy.     

DIVIDENDS,UNCERTAINTY, AND UNDERWRITING COSTS UNDER ASYMMETRIC INFORMATION

This paper presents a two-period model in which dividends act as a signal of the stability of the firm's future cash flows. It is demonstrated that firms with more stable future cash flows pay a higher dividend. Dividends are a credible signal because the promise of a higher dividend, ceteris paribus, increases the probability that the firm will have to issue equity and pay underwriting costs. Empirically testable implications of the model relating to the cross-sectional determinants of the level of dividends are also discussed.