Growth,governance and corporate payout policy

We show that when growth opportunities decreased following the end of the Cold War, defence firms responded by increasing total payout. This change in policy was largely driven by increased stock buybacks as opposed to changes in cash dividends and primarily by firms that faced stronger external governance. On the other hand, firms with weaker internal governance that were more severely affected by the reduced growth chose to alter the mix of payout at the expense of repurchases. Overall, our findings (i) demonstrate a causal link where exogenous shocks to growth cause payout policy changes, (ii) support the role of internal governance in payout policy design where entrenched managers pre‐commit to higher dividends and (iii) emphasize the monitoring role of external governance in mitigating agency costs of free cash flow.     

Share pledging,payout policy,and the value of cash holdings

Share pledging for insiders’ personal bank loans is associated with the agency problems of insider risk aversion and stock price crash risk. We examine the relation between insider share pledging and the value of cash holdings using the pledging data of listed firms in Taiwan. We find that the value of cash holdings is lower for pledging firms, especially for those that are relatively more risk averse. Pledging firms that repurchase shares have a higher marginal value of cash than those with other payout methods, likely due to the role of repurchases in reducing the stock price crash risk. Our results show how insiders’ personal financing incentives arising from share pledging would affect the value of cash holdings from the perspective of agency problems and payout policy.     

Corporate payout policy in Australia and a test of the life‐cycle theory

We provide evidence on the frequency and size of payouts by Australian firms, and test whether the life‐cycle theory explains Australian corporate payout policies. Regular dividends remain the most popular mechanism for distributing cash to shareholders, despite a slight decline in the proportion of dividend payers since the relaxation of buyback regulations in 1998. Off‐market share buybacks return the largest amount of cash to shareholders. Dividend paying firms are larger, more profitable and have less growth options that nondividend paying firms. Consistent with the life‐cycle theory, we observe a highly significant relation between the decision to pay regular dividends and the proportion of shareholders’ equity that is earned rather than contributed.     

Effect of the ban on short selling on market prices and volatility

We examine the effects of the short‐selling ban, imposed by Australian regulators in the wake of the global financial crisis, on the trading of financial stocks. Our findings argue against commonly stated reasons for imposing short‐sale bans. We find no evidence that short‐sale restrictions provide support for stock prices or that they reduce volatility. Moreover, stocks subject to the short‐selling ban suffered a severe degradation in market quality. Controlling for the adverse effects of the financial crisis on markets, we show that short‐selling restrictions increase intraday volatility, reduce trading activity and increase bid–ask spreads.     

External finance and dividend policy: a twist by financial constraints

This study assesses distorting effect of financial constraints on the inverse relationship between internal and external finance by examining impact of an exogenous financing shock (i.e. a regulation released in China in 2008) on dividend policies in a quasi‐natural experimental setting. Our result shows that in the absence of the regulation, the inverse relationship holds. However, the relation is twisted by the 2008 regulation. Compared with unconstrained firms, financially constrained firms are more willing to pay dividends and are more restrained to reduce cash dividends after the regulation, despite the fact that their external financing capacities are further constrained.     

Shareholder litigation rights and corporate payout policy: Evidence from universal demand laws

This study exploits the staggered adoption of universal demand (UD) laws, which place significant obstacles to derivative lawsuits and thus, undermine shareholders’ rights by 23 states in the United States (U.S.) from 1989 to 2005 as a quasi-natural experiment to examine the effects of shareholder litigation rights on corporate payout policy. Weakened litigation rights for shareholders materially increase firms’ payout ratios. The effect is more pronounced for firms exposed to higher shareholder litigation risk ex-ante, firms with higher institutional holdings, and ones financially unconstrained. Overall, the findings are consistent with lower shareholder litigation threats motivating firms to increase dividend payouts.     

How corporate governance affects payout policy under agency problems and external financing constraints

This paper analyzes the effect of corporate governance on the payout policy when a firm has both agency problems and external financing constraints. We empirically test whether strong corporate governance would lead to higher payout to minimize agency problems (outcome hypothesis), or to lower payout to avoid costly external financing (substitute hypothesis). We find that firms with higher (lower) external financing constraints tend to decrease (increase) payout ratio with an improvement in their corporate governance. The results are consistent with our hypothesis that the relation between payout and corporate governance is reversed depending on the relative sizes of agency and external financing costs.     

Short‐selling pressure and last‐resort debt finance: evidence from 144A high‐yield risk‐adjusted debt

This study examines why non‐financial publicly traded firms knowingly issue wealth destroying Rule 144A debt, which is associated with a negative announcement return and a higher yield. We provide a plausible ‘demand‐side’ explanation (i.e. last‐resort debt financing) for the motivation for issuing such debt. We also provide evidence as to what drives this negative reaction. Our findings suggest that the negative market impact is mainly driven by short‐selling pressure from convertible bond arbitrageurs.     

Mandatory corporate social responsibility disclosure and dividend payouts: evidence from a quasi‐natural experiment

Employing the enactment of a regulation that mandates a subset of firms to disclose their corporate social responsibility (CSR) activities as a quasi‐natural experiment, we find that mandatory CSR disclosure reduces firms’ dividend payouts significantly. Further analyses indicate that the negative relation is more pronounced for firms with weaker corporate governance mechanisms, where shareholders lack of effective tools to protect themselves against pressures from stakeholders, and a shift of relative power towards stakeholders is more likely to occur. Our paper provides a specific channel through which mandatory CSR disclosure benefits stakeholders at the expense of shareholders.     

Payout Policy Relevance and Accounting‐based Valuation

DeAngelo and DeAngelo (2006) (D&D) argue ‘payout policy is not irrelevant and investment is not the sole determinant of value, even in frictionless markets’. Consistent with this view, we argue that the concept of a perfect capital market in Miller and Modigliani (1961) (M&M) and Fama and Miller (1972) can be extended to allow for managerial moral hazard if managers are assumed not to participate in securities trading. An updated version of the M&M valuation model is presented and the possibility of managerial free cash flow (FCF) retention through operating expense manipulation and sub‐optimal investment policies is discussed. Our analysis supports D&D's argument that payout policy is relevant and indicates that value relevance of payout depends on the quality of earnings measurement and the optimality of investment policy. Following this, we develop a framework for analyzing valuation and informational roles of payout in accounting‐based valuation models and apply this framework to the Ohlson (1995) and Feltham and Ohlson (1996) models. This analysis shows how these models permit payout valuation relevance due to managerial FCF retention but not payout informational relevance. Finally, we consider how the Feltham and Ohlson (1996) model can be extended to incorporate time variation in expected profitability of capital investment caused by time variation in managerial FCF retention activities and show that this explicitly affects payout value relevance. We conclude that the development of models where payout plays an explicit valuation role due to issues of moral hazard is an important direction for future research.     

On‐Market Share Buy‐Backs: ASX Disclosure Requirements and Compliance

Our paper investigates the compliance of Australian listed firms with the ASX disclosure rules for on‐market share buy‐backs. We find that firm compliance is reasonable for initial buy‐back announcements, but poor for final buy‐back notices. In the latter instance, the disclosure in the appropriate ASX notice is provided in only 53% of cases. Of significant concern is the even lower degree of final notice compliance (42%) for buy‐backs tagged as having ‘unlimited’ duration. Across our total sample of 807 buy‐backs, an alternative form of disclosure of buy‐back completion is provided in 25% of cases, and no proper notification of either the initial announcement or the completion of the buy‐back is provided in 12% of cases. In order to improve buy‐back transparency, some legislative reform of the ASX rules is suggested including: discontinuing ‘unlimited duration’ buy‐backs, restricting buy‐back periods to a maximum of twelve months (after which a new buy‐back process must be initiated), avoiding multiple simultaneous buy‐backs, removing the requirement of daily buy‐back notices in favour of more meaningful quarterly or monthly reports, and requiring greater disclosure in relation to foreign buy‐backs.     

Cross‐listings and dividend size and stability: evidence from China

We investigate the relationship between cross‐listings and dividend policy. We find that Chinese cross‐listed firms have lower and more stable dividends than their non‐cross‐listed peers, and that dividends become more stable the longer a company has been cross‐listed. We also find the strength of the cross‐listing/dividend policy relationship varies based on the market where the shares are cross‐listed. The strength of the relationship varies from B‐shares (least strong) to Hong Kong shares (stronger) to American Depository Receipts (strongest). Our results indicate cross‐listings may influence both dividend size and stability, and that this influence can vary by the type of cross‐listing.     

Fails‐to‐Deliver before and after the Implementation of Rule 203 and Rule 204

We study the determinants of fails‐to‐deliver in the period before and after the implementation of Rule 203 (elimination of option market maker exception from the locate and close‐out requirement) and Rule 204 (t+3 close‐out rule) in September 2008. We find a positive relation between short selling and fails‐to‐deliver that weakens after the implementation of these rules. Fails‐to‐deliver are higher for stocks with low institutional ownership, low book‐to‐market, small market capitalization, high turnover, and put option availability. The relation between short selling and these measures of borrowing costs is also weaker after the implementation of these rules.     

Endogenous Financial Constraint and Investment‐Cash‐Flow Sensitivity

This paper studies a dynamic investment model with moral hazard. The moral hazard problem implies an endogenous financial constraint on investment that makes the firm's investment sensitive to cash flows. I show that the production technology and the severity of the moral hazard problem substantially affect the dependence of the investment‐cash‐flow sensitivity on the financial constraint. Specifically, if the production technology exhibits almost constant returns to scale in capital or the moral hazard problem is relatively severe, the dependence is negative. Otherwise, the pattern is reversed to some extent. Moreover, the calibrated benchmark model can quantitatively account for the negative dependence of investment and Tobin's Q on size and age observed in the data.     

Dividend preference of tradable‐share and non‐tradable‐share holders in Mainland China

Comprehensive data on corporate announcements of Chinese firms allows us to examine the preference for, and determinants of, cash and stock dividends. The results indicate that Chinese public investors prefer stock dividends over cash dividends, which are preferred by large state and legal person shareholders generally. Stock dividends, which do not require an explicit cash outflow from a firm, are found to be positively related to higher earnings, supporting the signalling hypothesis of dividend policy. In an imperfect market, these results have some implications for government regulation of financial markets.     

Capital structure of multinational and domestic corporations – a cross‐country comparison

This study investigates whether the determinants of capital structure between multinational corporations (MCs) and domestic corporations (DCs) vary across Australia, U.S., Japan, U.K. and Malaysia. Results show (i) the debt holding capacity and majority of the explanatory factors vary between DCs and MCs and also across countries; (ii) Australia, Japan, U.K. and Malaysian MCs hold significantly less long‐term debt relative to U.S. firms; (iii) DCs and MCs that operate under an imputation tax system hold significantly less short‐ and long‐term debt; and (iv) DCs and MCs operating under common law have significantly less short‐term debt and significantly higher long‐term debt.     

Relative Liquidity,Fund Flows and Short‐Term Demand: Evidence from Exchange‐Traded Funds

We show that highly liquid Exchange‐Traded Funds (ETFs), especially those that are more liquid than their underlying basket of securities (i.e., positive relative liquidity), are particularly attractive to investors. Using three definitions of liquidity, we find that relative liquidity predicts net fund flows, as well as inflows and outflows positively and significantly. We further document a liquidity clientele among institutional investors: (i) relative liquidity is significantly more important for short‐ than for long‐term investors; and (ii) relative liquidity is inversely related to investors’ average holding duration in the ETFs. These two findings provide evidence that relative liquidity encourages short‐term demand.     

Firm life cycle,corporate risk‐taking and investor sentiment

This study investigates the corporate risk‐taking and the performance consequences at different stages of the firm life cycle. We find that risk‐taking is higher in the introduction and decline stages of the life cycle, but lower in the growth and mature stages. We also find that risk‐taking during introduction and decline stage (growth and maturity stage) affects future performance adversely (positively). We also document that managerial risk‐taking propensities increase during periods of high investor sentiment and firms in different life cycle stages respond to sentiment differently. Collectively, these results suggest that the firm life cycle has explanatory power for corporate risk‐taking behaviour.