The impact of government ownership on dividend policy in China

We investigate the impact of State ownership on Chinese corporate dividend policy. We find that Chinese firms' dividend payout rates respond fairly quickly to earnings changes, and the average actual payout ratio for Chinese firms falls between the payout ratios for emerging-market and developed firms. These results are consistent with the dividend policies of developing economies in general. We also find that dividend payouts among dividend-paying firms, and the likelihood that a firm will pay a dividend, are increasing in State ownership. Our findings are consistent with the State's need for cash flow as a partial motivation for continued State ownership of a significant portion of the corporate economy, and support the agency and tax clientele explanations for dividend policy.     

The role of cross-listing,foreign ownership and state ownership in dividend policy in an emerging market

In this paper, we investigate if dividend policy is influenced by ownership type. Within the dividend literature, dividends have a signaling role regarding agency costs, such that dividends may diminish insider conflicts (reduce free cash flow) or may be used to extract cash from firms (tunneling effect) – which could be predominant in emerging markets. We expect firms with foreign ownership and those that are listed in overseas markets to have different dividend policies and practices than those that are not, and firms with more state ownership and less individual ownership to be more likely to pay cash dividends and less likely to pay stock dividends. Using firms from an emerging economy (China), we examine whether these effects exist in corporate dividend policy and practice. We find that both foreign ownership and cross-listing have significant negative effects on cash dividends, consistent with the signaling effect and the notion of reduced tunneling activities for firms with the ability to raise capital from outside of China. Consistent with the tunneling effect, we find that firms with higher state ownership tend to pay higher cash dividends and lower stock dividends, while the opposite is true for public (individual) ownership. Further analysis shows that foreign ownership mediates the effect of state ownership on dividend policy. Our results have significant implications for researchers, investors, policy makers and regulators in emerging markets.     

Equity ownership segregation, shareholder preferences, and dividend policy in China

We investigate how listed Chinese firms pay different types of dividend to satisfy shareholders, different dividend preferences shaped by institutional factors such as share tradability and asymmetrical taxation. We find that the cash dividend level is significantly and positively related to the proportion of non-publicly tradable shares and this relation is mainly driven by legal person shareholders' preferences for cash dividends. In contrast, the stock dividend level is significantly and positively associated with the proportion of publicly tradable shares. These findings provide an empirical rationale for the current reform on the segregation of equity ownership rights in China.     

Corporate liquidity and dividend policy under uncertainty

We examine optimal liquidity (retained earnings) and dividend choice incorporating debt financing with risk of default and bankruptcy costs as well as growth options under revenue uncertainty. We revisit the conditions for dividend policy irrelevancy and the broader role of retained earnings and dividends. Retained earnings have a net positive impact on firm value in the presence of growth options, high external financing costs and low default risk. High levels of retained earnings enhance debt capacity but have a negative effect on equity value due to the likelihood of losing accumulated cash balances in case of default, unless offset by high external financing costs. Opposite directional effects of retained earnings on equity and debt create a U-shaped relation with firm value. The framework is extended to analyze management-shareholder conflicts, demonstrating that managers accumulate higher than optimal cash.     

Corporate liquidity and dividend policy under uncertainty

We examine optimal liquidity (retained earnings) and dividend choice incorporating debt financing with risk of default and bankruptcy costs as well as growth options under revenue uncertainty. We revisit the conditions for dividend policy irrelevancy and the broader role of retained earnings and dividends. Retained earnings have a net positive impact on firm value in the presence of growth options, high external financing costs and low default risk. High levels of retained earnings enhance debt capacity but have a negative effect on equity value due to the likelihood of losing accumulated cash balances in case of default, unless offset by high external financing costs. Opposite directional effects of retained earnings on equity and debt create a U-shaped relation with firm value. The framework is extended to analyze management-shareholder conflicts, demonstrating that managers accumulate higher than optimal cash.     

Taxes and dividend policy under alternative tax regimes

This paper examines changes in corporate dividend policy around the introduction of a dividend imputation tax system. This represented a significant change to the Australian tax framework and allows us to test the effect of differential taxation on corporate dividend policy. Consistent with the tax preference for the distribution of dividends, we find dividend initiations, all dividend payout measures and dividend reinvestment plans increased with the introduction of dividend imputation. Similarly we find that gross dividend payouts are more volatile under dividend imputation. Finally, we find that the increase in dividend payout and initiations differs across firms. In particular, we find that the higher the level of available franking tax credits the higher the firm's gross dividend payout and the more likely the firm is to initiate a dividend.     

The effects of ownership structure on dividend policy: Evidence from seasoned equity offerings (SEOs)

This paper examines the effects of ownership structure on dividend policy, specifically the role of controlling shareholders in shaping dividend policy in a sample of firms that pay dividends and issue new equity simultaneously. The results show that managers in weakly governed firms are more likely to initiate customized dividends to meet outside large shareholders' needs while simultaneously using costly external capital to finance new investment projects. This paper contributes to the existing literature on agency problems by explaining why firms engage in this suboptimal dividend policy: it allows large shareholders to extract private benefits.     

The effects of ownership structure,sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia

Review of Quantitative Finance and Accounting - We investigate how a firm’s decision to hold excessive cash or to overinvest could influence its dividend payout policy in Indonesia....     

The impact of technical defaults on dividend policy

This paper examines how loan covenant violations impact firm dividend policy. Using contract-level loan data for nonfinancial firms in the US, this study provides evidence that the occurrence of a covenant violation significantly increases the likelihood of a dividend reduction in the subsequent quarter. Moreover, we show that the degree of creditor–shareholder conflict and firm financial constraints are important determinants of dividend cuts upon technical default. Additionally, this paper finds the tendency of dividend cuts upon technical default weakened after the repeal of the Glass–Steagall Act. These findings suggest that loan covenants serve a critical role in mitigating creditor–shareholder conflicts.     

The effects of dividend yield and dividend policy on common stock prices and returns

This paper suggests that it is not possible to demonstrate, using the best available empirical methods, that the expected returns on high yield common stocks differ from the expected returns on low yield common stocks either before or after taxes. A taxable investor who concentrates his portfolio in low yield securities cannot tell from the data whether he is increasing or decreasing his expected after-tax return by so doing. A tax exempt investor who concentrates his portfolio in high yield securities cannot tell from the data whether he is increasing or decreasing his expected return. We argue that the best method for testing the effects of dividend policy on stock prices is to test the effects of dividend yield on stock returns. Thus the fact that we cannot tell, using the best available methods, what effects dividend yield has on stock returns implies that we cannot tell what effect, if any, a change in dividend policy will have on a corporation's stock price.     

A bibliometric review of dividend policy literature

This study systematically reviews the dividend policy literature, combining quantitative and qualitative techniques. We screened a sample of 270 articles retrieved from the Scopus database from 1981 to 2022. We contribute to the literature by identifying six research streams based on bibliometric co-citation analysis: (1) Dividend payment practices, (2) Price–dividend relationship, (3) Capital market valuation, and dividend policy, (4) Risk governance and dividend policy, (5) Taxes and dividend policy, and (6) The dividend disconnects and catering incentives. For each of these streams, the central research theme is outlined, allowing us to recommend potential directions for further investigation. We provide influential journals, authors, topics, articles, and institutions from our analyses. We also contribute 77 research questions that can be explored in future research to develop the field of dividend policy. Our findings should be of value to academics, financial executives, policymakers, investors, and other practitioners.     

In search of a residual dividend policy

We survey 309 sample firms exhibiting behavior consistent with a residual dividend policy and their matched counterparts to learn how they set their dividend policies. The findings reveal that the sample firms are more likely than their counterparts to maintain a long-term dividend payout ratio, use long-run earnings forecasts in setting the dividend, and be unconcerned about the cost of raising external funds. Yet, firms behaving as though they follow a residual dividend policy generally do not profess to follow the policy. At best, the sample firms follow a “modified” residual policy in which they carefully manage their payout ratio and dividend trend. Although it may not be an explicit goal of such a dividend policy, consistently low free cash flow typically results.     

Earnings,dividend policy,and present value relations: Building blocks of dividend policy invariant cash flows

In a Modigliani-Miller world, dividend policy is irrelevant for asset pricing. This article searches for cash flows with two characteristics: like dividends, asset prices can be calculated from their present values and, unlike dividends, they are invariant with respect to changes in dividend policy. Segmented and aggregate residual income measures with these features are identified under two assumptions: dividend policy does not alter risk premiums and income earned from investments associated with dividend policy includes unrealized capital gains and losses. The results hold for otherwise arbitrary risk premiums in the general no-arbitrage approach to the valuation of uncertain income streams.     

A test of dividend irrelevance using volume reactions to a change in dividend policy

We investigate the implication of clientele theories that changes in dividend policy should result in a marked increase in trading volume as shareholder clienteles change. With 192 firms announcing their first cash dividend we document both an increase in trading volume and firm value around the announcement date. We integrate these results to distinguish between the volume response to good news about the future and clientele adjustments to a change in dividend policy. Our results suggest that volume increases primarily in response to the signal about future earnings contained in the dividend. Clientele adjustments are small.     

The effect of financial reporting quality on corporate dividend policy

This study examines how financial reporting quality affects corporate dividend policy. We find that higher quality reporting is associated with higher dividends. This positive association is more pronounced among firms with more severe free cash flow problems and among firms with higher ownership by monitoring-type institutional investors. Further analysis of the relation between reporting quality and under?/over-payment of dividends suggests that reporting quality largely mitigates underpayment of dividends. Additionally, both a granger causality test and a difference-in-difference analysis of dividend changes around a quasi-exogenous reporting event yield evidence consistent with the direction of causality going from financial reporting to dividends. Overall, these findings are consistent with financial reporting quality acting as a governance mechanism that induces managers to pay dividends by disciplining free cash flow problems. Our findings support the view that dividends are the result of enhanced monitoring (Jensen 1986; La Porta, Lopez-de-Silanes, Shleifer, and Vishny 2000).     

The link between bank monitoring and corporate dividend policy: The case of dividend omissions

This study investigates whether bank monitoring influences investor response to a borrowing firm's decision to omit its dividend payments. We establish a new link between the theories of banking and dividend policy in an examination of how bank monitoring and firm dividend signals complement one another to resolve information asymmetries. Results indicate that, for small firms, investors interpret the dividend decision as a function of bank monitoring and the dividend signals taken together. Also reported are the results of tests examining the differences between the monitoring effects of banks versus public and private non-bank lenders.     

Government policy and ownership of equity securities

Since World War II, direct stock ownership by households across the globe has largely been replaced by indirect stock ownership by financial institutions. We argue that tax and retirement policies are among the factors behind these changes. We develop empirical measures of two tax incentives of holding stocks inside tax-deferred plans, tax-free investment income and the smoothing benefit. Using long time-series from eight countries, we show that the fraction of household ownership decreases with these measures of the tax benefits. This finding contributes to policy debates on effective taxation and to financial economics research on the long-term effects of taxation on corporate finance and asset prices.     

Effects of family ownership and family management on the performance of entrepreneurial firms

Extending past research, this paper proposes that the quadratic inverse-U relationship between family ownership and the performance of entrepreneurial firms when moderated by the presence of family management and external blockholding. Specifically, it proposes that both factors exacerbate the decline in performance when the proportion of family ownership in entrepreneurial firms remains high. The proposed hypotheses are tested on ten years of panel data from a sample of European firms. Analysis of data supports the hypotheses. Implications for the theory and practice of entrepreneurial firms are discussed.     

Ownership structure and its effect on dividend policy in the Mexican context

This work focused on analyzing whether the ownership structure has any effect on the dividend policy of companies in the Mexican market. The decision of dividend payment is one of the major elements in corporate policy, as this dividend policy influences the value of the company. Therefore, decisions such as adopting a company growth policy through the reinvestment of profits, or better yet allocating them to the payment of dividends, are going to be influenced by the type of ownership structure that dominates the company. The analysis was based on three types of ownership structures such as: families, institutions (mainly banks) and small blocks of shareholders. Our results show that the concentration of property in families negatively influences the payment of dividends, whereas the presence of institutional shareholders has an inverse effect on the payment of the same. This indicates that the presence of big shareholders foreign to the families has a different effect on the payment policy of dividends in the Mexican context. This work provides literature information about the context of emerging countries as is the case of Mexico, given that much of the existing investigations focus on European or North American contexts, where the markets are well regulated and property is broadly distributed.     

The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability

Proponents of IFRS argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. We test this assertion by examining changes in foreign mutual fund investment in firms following mandatory IFRS adoption in the European Union in 2005. We measure improved comparability as a credible increase in uniformity, defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion, we find that foreign mutual fund ownership increases when mandatory IFRS adoption leads to improved comparability.