Neighborhood effect on stock price comovement

We investigate how the geographic distance between firms’ headquarters affects their stock price comovement. Our results show that a firm's stock return has stronger comovement with the returns of nearby firms than with those of distant firms. Being in the same state and/or in the same industry strengthens the return comovement, but does not substitute for the negative effect of geographic distance on price comovement. Firms of similar share price and size also show stronger return comovement, but these factors do not mitigate the negative distance impact. Consistent with investor home bias and neighborhood effect literature, our results suggest that investors’ preference for local stocks and their interactions lead to correlated trading in local stocks and therefore stronger local price comovement.     

On the differential market reaction to dividend initiations

The finance literature documents substantial positive stock price reaction to dividend initiations. Most dividend initiation studies focus on the average positive reaction; however, 40 percent of the firms that initiate dividends experience negative abnormal returns at announcement. This paper focuses on the apparent heterogeneity in the stock price reaction to dividend initiation. I find that the observed negative market reaction reflects the market’s economic assessment of the impact of the event on these firms, and that it is not caused by anticipation or confounding events. The result is also supported by the fact that the market reaction to dividend initiation for these firms is negatively related to initial dividend yield. Both the positive and negative observed reactions are consistent with conventional arguments regarding the information content of dividends, and their role in mitigating agency problems.     

The long-term performance following dividend initiations and resumptions revisited

Previous studies have documented that an announcement of dividend initiation and resumption is associated with an increase in stock price, while Boehme and Sorescu (J Finance 47:871–900, 2002) argue that the dividend anomaly only occurs by chance. However, their sample contains firms listed within 3 and/or 5 years of their respective initial public offering (IPO) dates, as well as regulated firms. We conjecture that the confounding effects of IPOs and regulated firms may interfere with the increase in stock prices due to dividend initiations and resumptions and bias their results. We thus reexamine the long-term stock performance following dividend initiations and resumptions by excluding newly IPO firms and regulated firms. We find no evidence that the non-robust positive price drifts for firms, which initiate or resume cash dividends, is due to the confounding effects of IPOs and regulated firms. Therefore the price drifts after dividend initiation and resumption announcements may be a sample-specific result of chance, even after controlling for possible sample selection biases.     

On the financial characteristics of firms that initiated new dividends during a period of economic recession and financial market turmoil

The initiation of new dividends and increases in dividend payout ratios occur infrequently because once initiated it would be expected by most investors that the new dividends will be maintained. Dividend announcements are said to have informational content concerning the value of the firm, and financial signaling theory would lead investors to conclude that the initiation of new dividends is an indication that the firm expects increased cash flows in the future. Thus, unless the initiation is identified beforehand as a special dividend resulting from unanticipated cash inflows, it is difficult to reverse the action without having an adverse effect on the value of the firm. In periods of economic recession and financial turmoil most firms conserve cash and the initiation of new dividends or increases in the dividend payout ratio in such periods are extraordinary and noteworthy. The purpose of this study is to provide a financial analysis of those firms described by Value Line as having initiated or increased the dividend payout ratio in the most recent period of economic recession and financial market turmoil. Specifically, the analysis will test for significant differences in the financial profiles of those firms that initiated new dividends in such a period, and companies selected at random but from the same industries. A unique financial profile is established for the dividend initiating firms, and it is suggested that the profile may be used to identify firms that will initiate new dividends in future periods of economic downturn. As in previous studies of this nature Multiple Discriminant Analysis is used.     

Hard Times or Great Expectations? Dividend Omissions and Dividend Cuts by UK Firms*

This paper uncovers an increasing proportion of quoted UK companies omitting cash dividends. Using a large panel of quoted UK firms, we estimate panel data probit models for the incidence of dividend omissions and cuts as functions of financial characteristics including cash flow, leverage, investment opportunities, investment and company size. These variables account for most of the increase in omission since 1995. There is relatively little evidence to link this to the major tax reform of 1997 that abolished tax refunds on dividend income payable to tax‐exempt institutions. Significant persistence effects indicate companies are slow to adjust their balance sheets through their dividend.     

Stale and Scale Effects in Markets-Based Accounting Research: Evidence from the Valuation of Dividends

Abstract

This study revisits prior research on the valuation of dividends in an accounting-based valuation framework. Using a battery of tests, we show that market value deflation is essential in market-based tests of dividend displacement and signalling because it controls for ‘stale’ information in addition to scale (size) differences across firms. For US firms, we show that after controlling for ‘stale’ information, the empirical association between dividends and market values switches from positive to negative. This switch is not explained by scale differences across firms. Further, we show that after controlling for staleness, the valuation of dividends remains positive for European firms. This result is explained by the relatively stronger association of dividends with future earnings in these settings (i.e. signalling). Lastly, our country-specific estimates of dividend valuation provide a potentially valuable index for studies aimed at examining the effects of accounting and securities regulation on information asymmetries in an international context.     

Pension Funding Constraints and Corporate Expenditures*

This paper examines the impact of a company's pension contributions (PCs) on its dividend and investment policies. The effects of shocks to cash flows on these corporate expenditures are identified by changes to pension funding regulations. Using a sample of DB pension schemes in FTSE350 UK‐listed firms we find a strong negative relation between PCs and corporate dividends even after controlling for the correlation between funding status and unobserved investment opportunities. We find that the more stringent funding requirements under the Pensions Act 2004 had a more pronounced effect on both dividend and investment sensitivities to PCs.     

Payout initiation by IPO firms: The choice between dividends and share repurchases

This study evaluates the economics of the choice of form of payout initiation mechanism adopted by IPO firms. Our results suggest that IPO firms demonstrate a preference for repurchases over dividends as the specific form of payout initiation mechanism. We however, find that while the market views post-IPO payout initiations favorably, it is indifferent to the specific form of payout mechanism adopted. Further, we find that dividends and repurchases represent distinct payout mechanisms adopted by IPO firms with fundamentally different characteristics and motivation to initiate payouts during the post-IPO phase. Our results suggest that while dividend initiations are primarily driven by life cycle and catering theory considerations, signaling theory provides the more likely explanation for payout initiations through share repurchases.     

The effect of takeover defenses on the dividend decision

Many firms have sought protection from hostile takeovers by passing defensive amendments to their corporate charter and/or lobbying their state legislatures for statutory protection. Agency theory would suggest that any such takeover defenses alter the principal-agent relationship. A consequence of such a change may be a change in corporate decision making. The objective of this research is to test the effect that passage of antitakeover amendments has on a firm's dividend policy. We use six alternate measures of dividend activity: total dividends paid, dividends per share and dividends relative to earnings, cash flow, market value, and book value. Our results indicate that firms that adopt antitakeover amendments, when compared to an industry control sample, tend to have a slower rate of growth in dividend payout as measured by the proxy variables. These results suggest that entrenchment is not a likely outcome of such amendments.     

上市公司财务能力与持续现金股利政策的实证分析——基于沪深A股数据

本文以1999年￣2004年连续派发现金股利的沪深A股上市公司为样本,分析了上市公司盈利能力、长期偿债能力、获取现金能力和发展能力对持续现金股利政策的影响程度。研究结果表明:在持续现金股利政策下,上市公司实现的盈利约有40%作为现金股利派发给了股东;而上市公司长期偿债能力、获取现金能力和发展能力对其持续现金股利政策无显著影响。     

Earnings quality and corporate payout policy linkages: An Indian context

We investigate the role of accounting quality as an antecedent of dividend payout decision of firms, for both dividend levels and dividend event, in an emerging market context. Using the data for Indian firms through the years 2006–2016, we evaluate the impact of discretionary accruals on payout decision employing Tobit and Logit regression models amid set of idiosyncratic controls. We report that better earnings quality, on average, is associated with large dividend payments for Indian firms. Moreover, the likelihood of dividend payment reduces with poor earnings quality and more so when earnings manipulation is done to increase earnings. Nonetheless, we show that higher earnings quality reduces dividends during the crisis period and also for group-affiliated firms. However, the same doesn’t hold true for dividend likelihood. The relationship is robust to the idiosyncratic controls and the causality test confirms that results are not susceptible to endogeneity issue. Overall, we conclude that better earnings quality takes care of free cash flow problems and alleviates the agency and information asymmetry related costs, thereby stimulating payout policy.     

Does the information content of payout initiations and omissions influence firm risks?

We study the influence on firm risks of NASDAQ and NYSE firm payout initiations and omissions. These payout events can be interpreted as managerial signals of firm financial life-cycle maturation resulting in concomitant changes in firm risks. We remove confounding payout types and we match on the propensity to initiate or omit informed by determinants of payout known to investors in advance. For payout event and matched firms, we apply the difference-in-differences method to estimate the effect of the information content of actual initiations and omissions on firm risks. We find consistent significant declines in total, aggregate systematic, and idiosyncratic firm risks after cash dividend initiations and increases after dividend omissions, but only incidentally after share repurchase initiations and omissions.     

Influence of family-centered goals on dividend policy in family firms: A socioemotional wealth approach

Socioemotional wealth (SEW) preservation is likely to be a key determinant for family firms when shaping their dividend policy. This paper analyzes how family-centered goals reflected by SEW can influence dividend policy in private family firms and explores how family involvement in management, generational stage, and firm hazard might moderate these relationships. Results indicate a negative association between SEW preservation and both the likelihood of giving dividends and the amount of dividend paid. This negative relationship is stronger when the CEO is a family member, in early generational stages and when the firm faces greater performance hazard. The amount of dividend paid is also lower when there are family members in other top management positions apart from the CEO. The evidence provided thus suggests that the existing heterogeneity in dividend policy in privately held family firms is strongly driven by differences in SEW priorities.

     

The impact of ultimate controller’s ownership on cash dividend policy based on a comparative analysis between owner-management and professional-management modes

This study uses Chinese listed firms to examine the relation between the ultimate controller’s ownership and cash dividends under different allocation modes of management rights. The empirical results show that under the professional-management mode, the ultimate controller’s ownership and dividend payments form an inverted U-shaped relation which results from the ultimate controller’s monitoring and collusion with the executive. Under the owner-management mode, the ultimate controller’s ownership and dividend payment levels assume a U-shaped relation which is attributed to its interest encroachment and convergence effect. The shape flip from professional-management to owner-management is the result of the changing opportunity cost of the controller’s dividend payments.     

Information content of unexpected dividends under a semi-mandatory dividend policy: An empirical study of China

We examine the information content of unexpected dividend changes under China’s unique semi-mandatory dividend policy, which requires firms to pay a minimum amount of cash dividends before they can undertake seasoned equity offerings (SEO). The cumulative abnormal returns (CARs) are significantly positive in response to unexpected dividend increase for non-SEO firms, but they are not significantly different from zero for SEO firms. For non-SEO firms, there is a significant positive relation between future earnings and unexpected dividend increases, but the relation is not significant for SEO firms. However, when considering additional refinancing costs for SEO firms caused by the mandatory dividend policy, higher dividend payments are associated with lower future earnings. Overall, our findings are consistent with both the dividend signaling theory and the negative effects of SEOs on a firm’s value.     

Changing dividend policies caused by the Tax Reform Act of 1986: An empirical analysis

In this paper the authors analyze the change in dividend yield (and capital gains yield) patterns of the group of 1108 firms listed on the monthly CRSP tapes from 1984 to 1988. It was anticipated that the Tax Reform Act of 1986 would lead to a pattern of increasing dividend yields and decreasing capital gains yields in 1987 and 1988 due to the elimination of the capital gains tax rate by 1988 and the overall reduction in personal tax rates. The results were consistent across all dividend groups as expected.     

An investigation into the financial characteristics of dividend initiating firms

Dividend announcements are said to have an informational content concerning the value of the firm. Most studies on dividend announcements have involved models to predict change or to analyze that informational content. The purpose of this study is to establish the financial characteristics of firms that initiate or significantly increase dividends. One hundred firms were selected for study. Fifty of the firms had recently either initiated or significantly increased dividends; the other fifty were selected at random. Significant differences were found in the financial characteristics of the two groups. The results were generally consistent with previous studies and finance theory. There were however, two genuine surprises. The dividend initiating firms possessed lower levels of liquidity and activity than firms selected at random. This suggests that dividends may not be paid to dispose of excess cash, but to provide shareholders with some tangible reward in periods of low liquidity and little activity.     

Cross-listing in the U.S. and domestic investor protection

Using the change in ordinary dividend payout as a proxy for improved governance, we show that cross-listing in the U.S. is associated with enhanced protection for the minority ordinary shareholders of exchange-listed non-U.S. firms. These firms substitute dividends for enhanced governance. We find no such effect for Rule 144a Portal firms. Interestingly, we document evidence inconsistent with the legal bonding hypothesis for Level 1 OTC firms. We believe that their ability to pay lower dividends post-listing is primarily due to their ability to credibly commit to fair treatment of their minority investors, given their record for equitable treatment of their ordinary shareholders. They achieve this reputation by consistently paying out a sizable proportion of their earnings as dividends. In addition, we find that the firm-level governance of Level 1 OTC firms, as measured by the number of closely held shares improves in the post-listing period. We find no such effect for SEC Rule 144a traded firms. Our results have also important implications for the agency models of dividends.     

Stock-market reaction to growth-induced dividend cuts: Are investors myopic?

This paper focuses on shareholder reaction to growth-motivated dividend cuts and omissions. The results reveal that although growth announcements mitigate the capital loss induced by dividend decreases, the stockmarket response to growth-oriented dividend cuts is still strongly negative. However, the capital loss suffered by investors is significantly reduced when dividend cuts are accompanied with stock dividends. Two potential explanations of the results are explored: (1) shareholders find the immediate benefits of stock dividends more attractive than the potentially higher future rewards of investment opportunities; and (2) shareholders overreact to dividend announcements. Analysis of the performance of the firms for two years following the dividend cut indicates weak support for the overreaction hypothesis.     

LIFO adoption and dividend payout

Adoption of the LIFO inventory costing method tends to decrease reported earnings but increases cash flows to adopting firms. This study examines the change in dividend payout ratios (cash dividends divided by earnings) accompanying LIFO adoption. The question addressed is whether adopting firms likely paid out incremental cash flows or retained them to the benefit of management. The evidence suggests that managers and directors adjusted payout ratios to partially offset the negative earnings effect of LIFO. The adjustments made were not sufficient in magnitude to achieve a neutral LIFO effect on dividend payout, and the net result was the retention of incremental cash flows generated by LIFO adoption.