An investigation into the financial characteristics of dividend initiating firms |
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Authors: | Bruce C Payne Denis O Boudreaux Jan W Duggar |
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Institution: | 1. University of Southwestern Louisiana, 70504, Lafayette, LA
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Abstract: | Dividend announcements are said to have an informational content concerning the value of the firm. Most studies on dividend
announcements have involved models to predict change or to analyze that informational content. The purpose of this study is
to establish the financial characteristics of firms that initiate or significantly increase dividends. One hundred firms were
selected for study. Fifty of the firms had recently either initiated or significantly increased dividends; the other fifty
were selected at random. Significant differences were found in the financial characteristics of the two groups. The results
were generally consistent with previous studies and finance theory. There were however, two genuine surprises. The dividend
initiating firms possessed lower levels of liquidity and activity than firms selected at random. This suggests that dividends
may not be paid to dispose of excess cash, but to provide shareholders with some tangible reward in periods of low liquidity
and little activity. |
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