Does dividend tax impede competition for corporate charters?

We develop a model of jurisdictional competition for corporate charters among the states in which a firm’s agency cost depends on the federal dividend income tax rate and the takeover regulations of its domicile state. When firms are mobile across states, the federal dividend income tax rate affects both the intensity of competition among the states and the equilibrium level of state takeover regulations. Our model shows that increasing dividend tax rate weakens the competition for corporate charters under a condition: dividend-paying and the market for corporate control are complementary corporate governance mechanisms. This condition holds empirically, suggesting that dividend tax not only discourages firms from paying dividends but also weakens their corporate governance by disincentivizing states to improve their corporate laws.     

Insider trading returns and dividend signals

The literature shows that insider trading activities and dividends contain information content and serve as signals to firm value. If insider return is a proxy for information asymmetry, we should expect a positive relation between dividends and insider returns. Using a sample of unambiguous (good and bad) news concerning earnings and dividend announcements from Hong Kong firms, we show that information asymmetry is stronger for bad news firms with insider sales than good news firms with insider purchases. In addition, we improve the methodology of Khang and King [Khang, K., & King, T. H. D. (2006). Does dividend policy relate to cross-sectional variation in information asymmetry? Evidence from returns to insider trades. Financial Management, 35, 71–94] and provide evidence that dividend is a credible signal for measuring information asymmetry.     

Stock market reaction to dividend announcements: Evidence from the Greek stock market

This study investigates the market reaction to cash dividend announcements for the period 2000–2004 employing data from the Athens Stock Exchange (ASE). In particular, the paper examines both the stock price and trading volume response to dividend distribution announcements. Dividend distributions in Greece demonstrate noticeable differences to those of the US, the UK and other developed markets. First, dividends in Greece are paid annually rather than quarterly or semi-annually. Second, the Greek corporate laws 2190/1920 and 148/1967 specifically designate the minimum amount for distribution from the taxed corporate profits. Third, neither tax on dividends nor on capital gains was imposed during the period under examination. Fourth, Greek listed firms are characterized by high ownership concentration where major owners are usually involved in management and therefore have less need for dividend announcements as an information source. Despite this neutralized information and tax environment, we document significant market reaction to dividend change announcements, lending support to the “information content of dividends hypothesis”.     

Firm location and corporate dividend policy: evidence from China

We investigate the relation between a firm’s geographic location and its dividend policy. We find that firms headquartered in the National Central Cities, cities with high-speed rail (HSR), and with shorter distance to the nearest National Central City pay higher dividends. We find evidence that attributes the higher dividends to an increase in the number of analysts’ site visits, greater information transparency, and a reduction in financial constraints. Finally, the observed increases in dividends tend to be stronger for firms that benefit the most from improvements in the information environment after the arrival of HSR, such as firms located in regions without regional airports, firms located in areas with a lower regional gross domestic product, firms located a greater distance to the closest National Central City, and firms that are smaller, state-owned, have a shorter listing history in the exchanges, and have a more concentrated ownership.     

Voluntary zero-dividend paying firms: characteristics and performance

We investigate the characteristics of ‘voluntary zero dividend paying’ firms and their subsequent performance. We define NDR_HP (no dividends or repurchases, with high profitability) firms as those with profits above the industry median and yet pay out zero dividends (including share repurchases). Signalling, agency, residual dividend, and life cycle theories explain firm characteristics and dividend payouts, to which we add the novel variables CEO overconfidence and market competition. We discover that growth opportunity, capital expenditure, and CEO overconfidence are positively related to NDR_HP. In addition, we find that the NDR_HP group outperforms all other groups in terms of future performance.     

Estimation and specification analysis of models of dividend behavior based on censored panel data

Dividends move in discrete jumps. Moreover, some companies pay dividends, others do not. Both these aspects necessitate the use of limited dependent variable models in the analysis of dividend behavior. Models of dividend behavior usually ignore these problems and treat dividends as a continuous variable. The present paper analyzes dividend behavior using panel data on 649 firms for 12 years (1976–1987). The model used is a censored regression model which allows for firm-specific and time effects. It is estimated using the maximum likelihood method under three different error covariance specifications. Based on specification tests, it is argued that it is important to allow for the zero observations, industry effects, and firm-specific and time effects in the estimation of models of dividend behavior.     

Exploring the causal effect of religious piety on dividend policy: evidence from historical religious identification

Theory suggests that religious piety is associated with greater risk aversion and more conservative financial policies. Returns to shareholders through dividends are much more certain than returns through capital gains expected to be realized far into the future. We hypothesize that religious piety leads to a higher likelihood of dividend payments. We exploit the variation in religious piety across the US counties and estimate the effect of religion on dividend policy. To draw a causal inference, we use historical religious piety in 1971 as the instrument. Our two-stage least squares results confirm that religious piety induces firms to pay larger dividends.     

Evolving corporate governance and the dividends behaviour regime in Japan

This study investigates empirically the implications which the changing ownership structure and control transfers in the Japanese corporate market may have for the dividend policy of listed firms. The results show that firms with more concentrated ownership may distribute fewer dividends, as ownership concentration reduces distribution pressure from the capital market. Moreover, we show that institutional shareholding, both financial and non-financial, enables corporations to pay lesser dividends and also that the unwinding of the cross-shareholdings allows for efficiency gain and provides impetus to pay higher dividends. The recent pattern of increasing individual shareholding, both of domestic and foreign private individuals, is consistently associated with a higher dividend payment. Furthermore, managerial ownership has negative effects on dividends payouts and is not associated with the earnings of firms. The results suggest that government ownership does not have any significant impact on the payment of dividends. Moreover, our results support the principle of the dividends relevancy and the choice of an appropriate dividends policy affects the value of the firm.     

The effect of managerial ability on dividend policy: how do talented managers view dividend payouts?

We contribute to the literature on dividend policy by relaxing Miller and Modigliani’s (1961) perfect capital market assumptions and incorporating a factor that has not been investigated before, that is, variation in managerial ability. Based on more than 24 000 observations across over 20 years (1989–2011), our results show that firms with more talented executives are more likely to pay dividends and, among firms that pay dividends, pay significantly larger dividends. A rise in managerial ability by one SD raises the propensity to pay dividends by 27% and, for firms that pay dividends, increases dividend payouts by 29%. Our results are consistent with the notion that talented managers, confident in their ability to keep the firm profitable, are more willing to pay larger dividends because they are less concerned about having to reduce dividends in the future. Further analysis shows that our results are not likely vulnerable to endogeneity.     

Corporate governance and dividend pay-out policy in Germany

A new explanation of why dividends may be informative is put forward in this paper. We find evidence that dividends signal the severity of the conflict between the large, controlling owner and small, outside shareholders. Accordingly, dividend change announcements provide new information about this conflict. To test the rent extraction hypothesis and discriminate it from the cash flow signaling explanation, we utilize information on the ownership and control structure of the firm. We analyze 736 dividend change announcements in Germany over the period 1992-1998 and find significantly larger negative wealth effects in the order of two percentage points for companies where the ownership and control structure makes the expropriation of minority shareholders more likely than for other firms. The rent extraction hypothesis also has implications for the levels of dividends paid. We find larger holdings of the largest owner to reduce, while larger holdings of the second largest shareholder to increase the dividend pay-out ratio. Deviations from the one-share-one-vote rule due to pyramidal and cross-ownership structures are also associated with larger negative wealth effects and lower pay-out ratios. Finally, using Lintner's (American Economic Review 46 (2) (1956) 97-113) model of dividend determination we find corroborating results. The presence of a second largest shareholder with a considerable equity stake makes a crucial difference in the governance of the firm. Our results call for better minority shareholder rights protection and increased transparency in the course of European Capital Market Reform.     

Socioeconomic Index for Income and Poverty Prediction: A Sufficient Dimension Reduction Approach

The present paper introduces a novel method for the construction of Socioeconomic Status (SES) indices that are specific to a target variable of interest. It is based on the Sufficient Dimension Reduction (SDR) paradigm and uses a factorized model-based approach to simultaneously deal with predictor variables of mixed nature (i.e. quantitative, binary, and ordinal), which are usual in microeconomic data. These SES indices also identify relevant predictor variables using a two-step regularized matrix factorization approach. Using data from household surveys for Argentina (Encuesta Permanente de Hogares-EPH), the proposed method is compared with other existing dimension reduction algorithms such as standard Principal Component Analysis (PCA) and its version for mixed variables, regression on the full set of variables and Least Absolute Shrinkage and Selection Operator regression (LASSO).     

THE IDIOSYNCRATIC PATTERN OF RUSSIAN CORPORATE DIVIDEND POLICY DURING ITS FORMATIVE ERA

In general, the dividend payout pattern for Russian corporations during their formative period from 1998 to 2006 was seemingly independent of company earnings, size, growth opportunities and capital structure, as such firm policies appear not to conform to any of the main extant dividend payout theories. The only exception we find is that of utility firms, which were inclined to pay consistent dividends. Utility firms tended to be partly owned by the state and were subject to price regulation. Consequently, they may have had limited investment prospects. Our findings suggest that dividend payout policies in non‐market economies may be driven by non‐traditional determinants, such as the state's overall industrial strategy.     

An empirical analysis of stock returns around dividend changes

This paper documents significant drift in stock returns following announcements of changes in cash dividends. The magnitude is (i) smaller for increases than for decreases, (ii) inversely related to firm size and positively to dividend yield change, and (iii) concentrated in the first quarter. Beta changes do not explain the drift and it is robust in various subperiods. Next it is shown that dividend increases are positively autocorrelated especially every fourth quarter. The prices keep reacting to future announcements as if the market ignores these autocorrelations. Dividend decreases exhibit weak autocorrelation and the returns are negative for the following three announcements.     

On the marginal source of investment funds

Under the ‘new view’ of dividend taxation developed by Auerbach (Quarterly Journal of Economics 1979;93:433-446), Bradford (Journal of Public Economics 1981;15:1-22) and King (Public Policy and the Corporation, Chapman & Hall, London, 1977), the marginal source of finance for new investment projects is retained earnings. In this case, the tax advantage of retaining earnings precisely offsets the double taxation of subsequent dividends: taxes on dividends have no impact on the investment incentives of firms using retentions as a marginal source of funds and paying dividends with residual cash flows. We show that the same invariance with respect to dividend taxes may hold under weaker conditions with respect to the source of funds, if the use of funds follows the same pattern. We find evidence that there is significant heterogeneity in our sample of US firms, with some firms exhibiting dividend behavior consistent with this expanded version of the new view, and others exhibiting behavior consistent with the traditional view that retained earnings are not an important marginal source of funds.     

Reducing agency conflicts through bank dividend payout decisions: the role of opacity and ownership structure

We empirically examine whether banks’ dividend decisions are influenced by their degree of opacity and ownership structure. We find that banks with concentrated ownership structure pay lower dividends when they have high degrees of opacity, in line with the hypothesis that majority shareholders pay lower dividends to extract higher levels of private benefits. We do not observe such expropriation behaviour from managers in widely held banks. Further analysis shows that higher levels of shareholder protection and stronger supervisory regimes help to constrain opportunistic behaviour of majority shareholders. Our findings have critical policy implications for the Basel 3 implementation of restrictions on dividend payouts.     

送转与定向增发：基于市值管理的视角

送转和定向增发是 A 股市场上常见的两种公司行为。文章旨在从市值管理的视角，揭示上市企业送转与定向增发的内在关联及其经济逻辑。研究发现：(1)定向增发企业送转的比例与规模显著高于配对的未增发企业，而且两者的差异在增发后显著大于增发前；(2)在有外部机构投资者参与的定向增发中，企业送转的比例与规模显著高于其他类型的定向增发；(3)企业送转行为会显著影响增发折价，增发后送转企业的增发折价显著低于增发前送转(从未送转)的企业。文章研究表明，送转是 A 股市场上定向增发企业广为使用的一种市值管理手段，送转的规模与时机是企业与外部投资者理性博弈的结果。文章的研究不仅从市值管理角度为我国资本市场上频频出现的上市公司高送转行为提供了经验证据，而且对于监管层制定与送转和定向增发相关的政策具有重要的参考价值。     

The Cass criterion, the net dividend criterion, and optimality

Abel, Mankiw, Summers, and Zeckhauser [Assessing dynamic efficiency: theory and evidence, Rev. Econ. Stud. 56 (1989) 1-20] propose the net dividend criterion as an easy to use sufficient condition for optimality in general stochastic overlapping generations economies with production. We provide examples based on the criterion due to Cass [On capital overaccumulation in the aggregative neoclassical model of economic growth: a complete characterization, J. Econ. Theory 4 (1972) 200-223] and its extensions, the usual tools for such problems, to show that the net dividend criterion need not give the right answer. We identify the flaw in their proof. We also provide an alternative condition which, by an argument unrelated to theirs, is a sufficient condition for optimality when dividends are nonnegative and then argue that the condition is not innocuous since it cannot be verified in actual economies.     

Dividend taxation and household dividend portfolio decisions: evidence from the U.S. Jobs and Growth Tax Relief Reconciliation Act of 2003

This study examines the dividend clientele hypothesis by focusing on the preferential tax treatment of qualified dividends provided by the 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) in the United States. Using the Public Use Tax File data, the author finds that the ratios of dividends to long-term capital gains before the 2003 tax act significantly declined with household tax rate differentials between dividends and long-term capital gains, but such a negative tax effect on the ratios disappears afterwards. This seemingly tax-inefficient composition of dividends and long-term capital gains after the tax act arises from households’ ability to reduce their tax burdens on stocks by exploiting the new preferential tax treatments on qualified dividends under JGTRRA. That is, households in the upper tax bracket hold significantly greater shares of qualified dividends relative to ordinary dividends after the tax act.     

The repatriation incentive of the foreign dividend exemption system

Due to the high taxation of domestic corporate income, Japanese multinational enterprises have avoided to repatriate foreign profits to Japan for quite some time. As a consequence, the Japanese government introduced a new taxation system in 2009 – the so called dividend exemption system – which was aimed at reducing the effective tax burden of foreign dividends of Japanese multinational companies in order to increase tax revenue and stimulate economic growth. Applying a theoretical framework which allows comparing the repatriation incentive of the old and new Japanese tax systems, we find that in the long-run the tax regime change fails to incentivize foreign subsidiaries to repatriate foreign profits. Especially subsidiaries with high leverage located in countries with low corporate taxes and low dividend taxes might reinvest rather than distribute their earnings in the dividend exemption method.     

Dividend-Driven Trading Strategies: Evidence from the Warsaw Stock Exchange

This study presents an analysis of dividend-driven trading strategies based on dividend yield growth effects in the Polish stock market in the years 1994–2004. Results indicate that the dividend yield growth portfolios were capable of beating the market in the entire sample period. Their performance, however, was not consistent over time and the highest returns were obtained during final years. Empirical findings based on the analysis of different types of portfolios demonstrate the importance of dividends as a source of significant fundamental information items from stock market companies. At the same time, they show that a dividend investment strategy for the Polish stock market is most successful when the selection of stocks for the dividend yield growth portfolios is subject to further restrictions, most notably concerning company size.