What factors determine dividend smoothing by US and EU banks?

Using a relatively large sample of European and US banks for the period 1998–2016, we investigate the determinants of bank dividend smoothing based on agency, asymmetric information and risk‐shifting theories. We show that dividend payout ratio smoothing practices were implemented on both continents before and after the crisis of 2007 and were more strongly pronounced for EU banks. Our findings mostly support agency‐based explanations of bank dividend behavior as evidenced by higher payout ratio smoothing for banks with higher (initial) dividend payouts, lower ownership concentration, public banks, and banks with lower growth opportunities and weaker investor protection. Evidence in favor of asymmetric information explanations is stronger for EU countries, where smaller (more opaque) banks appear to smooth more. In both continents, banks that rely more heavily on equity issuances are found to smooth dividend payout ratios more, suggesting that banks aim at improving access to equity markets. We also provide evidence in support of risk‐shifting, as evidenced by the persistence of dividend payout ratio smoothing in the crisis years and higher dividend smoothing for banks under greater regulatory pressure. Additional analysis using a time series partial adjustment model for dividend levels provides evidence supporting the prevalence of dividend smoothing and the suggested theoretical explanations.     

CULTURE,CORPORATE GOVERNANCE,AND DIVIDEND POLICY: INTERNATIONAL EVIDENCE

We find that Hofstede's cultural dimensions—uncertainty avoidance, masculinity, and long‐term orientation—remain significant in the determination of firms’ dividend policies, even after controlling for corporate governance. We also show that this association varies with the strength of corporate governance, measured by the degree of investor protection. Hence, national culture and investor protection independently affect firms’ dividend payouts but also interact with each other, such that strong investor protection induces higher dividend payouts in high uncertainty avoiding and/or highly masculine cultures. Our results provide strong evidence that cultural differences matter and offer additional power in explaining variations in dividend policies.     

Time-varying integration,interdependence and contagion

Bekaert et al. (2005) define contagion as “correlation over and above what one would expect from economic fundamentals”. Based on a two-factor asset pricing specification to model fundamentally-driven linkages between markets, they define contagion as correlation among the model residuals, and develop a corresponding test procedure. In this paper, we investigate to what extent conclusions from this contagion test depend upon the specification of the time-varying factor exposures. We develop a two-factor model with global and regional market shocks as factors. We make the global and regional market exposures conditional upon both a latent regime variable and three structural instruments, and find that, for a set of 14 European countries, this model outperforms more restricted versions. The structurally-driven increase in global (regional) market exposures and correlations suggest that market integration has increased substantially over the last three decades. Using our optimal model, we do not find evidence that further integration has come at the cost of contagion. We do find evidence for contagion, however, when more restricted versions of the factor specifications are used. We conclude that the specification of the global and regional market exposures is an important issue in any test for contagion.     

中国股票市场股利政策(英文)

本文解释了鼓励政策的定义和现今中国企业通常使用的股利政策方法。文中将对中国与西方的股利政策的异同进行对比,同时分析了具有中国特色股利政策形成的原因,并且提出了一些改善现状的意见和建议。     

Contagion as a domino effect in global stock markets

This paper shows that stock market contagion occurs as a domino effect, where confined local crashes evolve into more widespread crashes. Using a novel framework based on ordered logit regressions we model the occurrence of local, regional and global crashes as a function of their past occurrences and financial variables. We find significant evidence that global crashes do not occur abruptly but are preceded by local and regional crashes. Besides this form of contagion, interdependence shows up by the effect of interest rates, bond returns and stock market volatility on crash probabilities. When it comes to forecasting global crashes, our model outperforms a binomial model for global crashes only.     

中国股票市场股利政策

本文解释了鼓励政策的定义和现今中国企业通常使用的股利政策方法.文中将对中国与西方的股利政策的异同进行对比,同时分析了具有中国特色股利政策形成的原因,并且提出了一些改善现状的意见和建议.     

Crossing the lines: The conditional relation between exchange rate exposure and stock returns in emerging and developed markets

This paper examines the importance of exchange rate exposure in the return generating process for a large sample of non-financial firms from 37 countries. We argue that the effect of exchange rate exposure on stock returns is conditional and show evidence of a significant return impact to firm-level currency exposures when conditioning on the exchange rate change. We further show that the realized return to exposure is directly related to the size and sign of the exchange rate change, suggesting fluctuations in exchange rates as a source of time-variation in currency return premia. For the entire sample the return impact ranges from 1.2 to 3.3% per unit of currency exposure, and it is larger for firms in emerging markets compared to developed markets. Overall, the results indicate that foreign exchange rate exposure estimates are economically meaningful, despite the fact that individual time-series results are noisy and many exposures are not statistically significant, and that exchange rate exposure plays an important role in generating cross-sectional return variation. Moreover, we show that the relation between exchange rate exposure and stock returns is more consistent with a cash flow effect than a discount rate effect.     

The U.S. left behind? Financial globalization and the rise of IPOs outside the U.S.

From 1990 to 2011, the share of world IPO activity by non-U.S. firms increased because of financial globalization and because of a decrease in U.S. IPO activity. Financial globalization reduces the impact of national institutions on domestic IPO activity and enables more non-U.S. firms from countries with weak institutions to go public with a global IPO. U.S. IPO activity does not benefit from financial globalization. Compared to other countries, the rate of small-firm IPO activity in the U.S. is abnormally low in the 2000s. This abnormally low rate cannot be explained by the regulatory changes of the early 2000s.     

The performance of newly privatized firms in selected MENA countries: The role of ownership structure, governance and liberalization policies

The paper analyzes 95 newly privatized firms (NPFs) in four Middle Eastern and North African countries (Egypt, Morocco, Tunisia, and Turkey). We find that these firms experienced significant increases in profitability and operating efficiency, and significant declines in employment and leverage. We also document strong performance improvements for firms that did remain state-owned, that were not sold to foreigners, and that came from Egypt. Job losses are higher in Egypt and in firms where the state is no longer in control. Also, the results indicate that revenue firms and NPFs in Morocco display significantly less leverage than control firms and those from other countries. We find that profitability changes are negatively related to state control and positively related to foreign ownership. Trade openness, change in real GDP over the privatization window, index of investor protection, and foreign ownership are important determinants of the changes in sales efficiency and output. These findings suggest that NPFs become more productive in environments where property rights are better protected and enforced and that foreign investors influence firms' productivity through their monitoring role.     

A theory of optimal expropriation, mergers and industry competition

We model a competitive industry where managers choose quantities and costs to maximize a combination of firm profits and benefits from expropriation. Expropriation is possible because of corporate governance ‘slack’ permitted by the government. We show that corporate governance slack induces managers to choose levels of output and costs that are higher than would otherwise be optimal. This, in turn, benefits consumers - the equilibrium price is lower - and other stakeholders such as suppliers and employees. Depending on the government’s social welfare objective, less-than-perfect investor protection can be optimal. We show why some mechanisms suggested by the literature as improving investor protection - legal change, cross-listing, domestic mergers - may not be effective. We provide a theoretical argument showing the efficacy of cross-border mergers. The stronger corporate governance of a foreign acquirer, imposed on the domestic target firm, benefits merging shareholders and those of competing unmerged domestic firms.     

Estimating systemic risk in the international financial system

This paper develops three distinct methods to quantify the risk of a systemic failure in the global banking system. We examine a sample of 334 banks (representing 80% of global bank equity) in 28 countries around five global financial crises. Our results suggest statistically significant, but economically small, increases in systemic risk. Although policy responses are endogenous, the low estimated probabilities suggest that the distress of central bankers, regulators and politicians about the events we study could be overstated and that current policy responses to financial crises could be adequate to handle major macroeconomic events.     

What lies beneath: Foreign exchange rate exposure,hedging and cash flows

This paper presents results from an in-depth analysis of the foreign exchange rate exposure of a large nonfinancial firm based on proprietary internal data including cash flows, derivatives and foreign currency debt, as well as external capital market data. While the operations of the multinational firm have significant exposure to foreign exchange rate risk due to foreign currency-based activities and international competition, corporate hedging mitigates this gross exposure. The analysis illustrates that the insignificance of foreign exchange rate exposures of comprehensive performance measures such as total cash flow can be explained by hedging at the firm level. Thus, the residual net exposure is economically and statistically small, even if the operating cash flows of the firm are significantly exposed to exchange rate risk. The results of the paper suggest that managers of nonfinancial firms with operations exposed to foreign exchange rate risk take savvy actions to reduce exposure to a level too low to allow its detection empirically.     

Resolving the exposure puzzle: The many facets of exchange rate exposure

Theory predicts sizeable exchange rate (FX) exposure for many firms. However, empirical research has not documented such exposures. To examine this discrepancy, we extend prior theoretical results to model a global firm's FX exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges. For a typical sample firm, pass-through and operational hedging each reduce exposure by 10–15%. Financial hedging with foreign debt, and to a lesser extent FX derivatives, decreases exposure by about 40%. The combination of these factors reduces FX exposures to observed levels.     

Dividend policies across multinational and domestic corporations – an international study

This study examines whether the determinants of dividend payout ratios between Multinational (MCs) and Domestic corporations (DCs) vary across Australia, U.S., Japan, U.K. and Malaysia. Results show: (i) Australian, UK and Malaysian MCs pay significantly less dividends than their Domestic counterparts; however, the opposite holds for the U.S. firms; (ii) the factors that significantly explain the difference between DCs’ and MCs’ payout ratios vary across countries; (iii) firms operating in an imputation tax system and in a common law environment pay comparatively higher dividends relative to firms operating in a classical tax system and civil law regime.