Dividends and taxes

We present sufficient conditions for taxable investors to be indifferent to dividends despite tax differentials in favor of capital gains (Strong Invariance Proposition). The conditions include two ‘seemingly unrelated’ provisions of the Internal Revenue Code: (1) the limitation of interest deductions to investment income received and (2) the tax-free accumulation of wealth at the before-tax interest rate on investments in life insurance. Although we use insurance for simplicity in the proof, many tax-equivalent investment vehicles now exist, notably pension funds. Our analysis suggests that the personal income tax is approaching a consumption tax with further drift likely.     

Dividends and Losses

An annual loss is essentially a necessary condition for dividend reductions in firms with established earnings and dividend records: 50.9% of 167 NYSE firms with losses during 1980–1985 reduced dividends, versus 1.0% of 440 firms without losses. As hypothesized by Miller and Modigliani, dividend reductions depend on whether earnings include unusual items that are likely to temporarily depress income. Dividend reductions are more likely given greater current losses, less negative unusual items, and more persistent earnings difficulties. Dividend policy has information content in that knowledge that a firm has reduced dividends improves the ability of current earnings to predict future earnings.     

Dividends and price momentum

Stock market evidence shows that momentum profits are lower among dividend-paying firms than their non-paying counterparts due to differences in losers’ returns. Additionally, dividend maintenance is associated with higher returns for losers but not for winners. Finally, buying winners that increased their dividends and shorting losers that decreased their dividends enhances momentum profits. Consistent with the evidence, the behavioral models suggest that investors underreact to the losers’ positive dividend-maintaining news, reducing their return momentum and shrinking the payers’ momentum profit. Also, underreaction to positive news from winners’ dividend-increasing announcements as well as to negative news from losers’ dividend-decreasing announcements explains the higher momentum profits for strategies based on these stocks. The results do not appear consistent with risk-based explanations.     

Scrip Dividends: the Management's View

This paper examines the motivation underlying the payment of scrip dividends through a questionnaire survey conducted among a sample of companies listed on the London Stock Exchange that offered their shareholders this option, and a control sample of firms that paid only cash dividends. The results show that the overwhelming majority of the respondents from both groups feel that the scrip dividend option is driven by the current and/or potential high irrecoverable advanced corporation tax but the proposition that this option is a substitute for external finance or a cut in cash dividends is strongly rejected. Managers feel that, although the scrip dividend option allows small shareholders to increase their holdings without incurring transaction costs, it is not intended to convey information that will lead to a rise in the share price. Furthermore, the results reveal that the decision between offering this option or paying only cash dividends is substantially affected by shareholders' pressure, suggesting that firms in the UK are subject to direct shareholder monitoring.     

Local Culture and Dividends

I empirically investigate whether geographical variations in local culture, as proxied by local religion, affect dividend demand and corporate dividend policy for a large sample of US firms. Firms located in Protestant counties are more likely to be dividend payers, initiate dividends, and have higher dividend yields, while firms located in Catholic counties are less likely to be dividend payers and have lower dividend yields. There is a geographically varying dividend clientele effect consistent with the variations in risk aversion among different cultural groups. My results suggest that firms largely held by local investors determine their corporate policies in line with local culture.     

Dividends and economic policy uncertainty: International evidence

We provide the first international evidence on the impact of economic policy uncertainty (EPU) on dividend policy. Using data from 19 countries, we find that a high level of EPU is positively associated with dividend payout. This evidence is robust to using alternative dividend payout measures, to controlling for other sources of uncertainty, and to addressing endogeneity. We further find that the effect of EPU on dividend policy is moderated by firms' free cash flows and governance quality, and by the quality of country-level indicators of shareholder protection, disclosure, enforcement, and creditor protection. Collectively, our novel evidence suggests that dividends help mitigate agency problems during high-EPU periods.     

Dividends: Relevance,rigidity, and signaling

This paper uses a dynamic partial equilibrium model to explain a puzzle of dividend smoothing. In contrast to the Modigliani–Miller theory, I show that firm value depends on payout policy. The analysis implies that firms with more stable dividend stream are more valuable. This explains why dividends are rigid over time. A volatile component of dividends is introduced to reduce the likelihood of dividend omission in bad times while keeping the same historical average dividends. I show that the empirically observed positive relation between dividends and future firm performance is a statistical artifact driven by dividend smoothing. Thus, the empirical tests of dividend signaling theory might be misspecified.     

Adjustments For 'Extraordinary Items'In Smoothing Reported Profits of Listed Australian Companies: Some Empirical Evidence

Nothing is more likely to undermine the credibility of financial reporting than the suspicion that the results reported were predetermined and that the accounting methods used were selected to produce the results desired by the preparers of the report', Solomons (1983).     

浅析对外贸易对国内市场态势的影响

市场可划分为总量性市场、结构性市场和个量性市场三个层次.通过对外贸易可改变国内市场态势,其结果有三种类型:量变影响、回复性影响和质变影响.对外贸易对国内市场的效应很复杂.可根据国内市场的不同态势采取不同的进出口措施干预国内市场的失衡.     

Dividends and Capital Asset Prices

Tax based dividend models of capital asset pricing assume that dividends are known at the time prices are set. Dividends which are announced and paid in the same month, and dividends which were expected but cancelled in the month constitute surprises which interfere with many empirical tests of the effects of expected dividend yield on returns. This paper avoids these problems by relating returns to forecasts of dividend yield obtained from past data.     

The Impact of Portfolio Diversification on Trading Rules Profits: Some Evidence for UK Share Portfolios

This paper demonstrates how the autocorrelation structure of UK portfolio returns is linked to dynamic interrelationships among the component securities of that portfolio. Moreover, portfolio return autocorrelation is shown to be an increasing function of the number of securities in the portfolio. Since the security interrelationships seemed to be more a product of their history of non-synchronous trading than of systematic industry-related phenomena, it should not be possible to exploit the high levels of return persistence using trading rules. We show that rules designed to exploit this portfolio autocorrelation structure do not produce economic profits.