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What Drives the Cash Dividend Policy of the Poorly Performing Firms in Hong Kong?

Louis T. W. Cheng

School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

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Hung-Gay Fung

College of Business Administration, University of Missouri St. Louis, One University Blvd, St. Louis, MO 63112, USA

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, and

T. Y. Leung

Department of Accountancy, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong

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https://doi.org/10.1142/S0219091508001386Cited by:7 (Source: Crossref)

Abstract

We use financial data on poorly performing firms in Hong Kong to examine the motives behind paying out cash dividends when they suffer an earnings decline. We test three hypotheses behind the cash dividend policy: the maturity hypothesis, the free cash flow hypothesis, and the self-interest hypothesis of directors (i.e., the cash channeling hypothesis of directors). The findings are largely consistent with the maturity hypothesis and the free cash flow hypothesis but do not support the cash channeling hypothesis, confirming good market transparency and governance of the Hong Kong market.

Keywords:

JEL: D82, G14, M41

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