Narrow Results

This paper studies the effects of stock splits on returns using daily data from the Singapore Stock Exchange over the period 1983-2000. Specifically, it examines whether stock split announcements provide credible signals due to asymmetry of information. We find that the market, on average, responds positively and significantly to announcements of stock splits. We then partition the sample into sub-samples: one with dividends (earnings) increasing firms and another with dividends (earnings) decreasing firms the 12 month period after the stock split. Both groups respond positively to stock split announcements on the event period, which initially casts doubt on the signaling hypothesis. Additional tests show that the difference between the cumulative average returns of the two sub-samples is significantly positive during the post-event and/or full-test period. An implication of this finding is that the market can differentiate ex ante between the two sub-samples, which lends support to the hypothesis that stock split announcements generally provide credible signals of future prospects.

We study the simplest discrete-time finite-maturity model in which default arises when the firm is not able to pay its debt obligation using the current cash-flow plus the corporate liquidity. An important distinction is made between liquidity and solvency of the firm. The corporate financial policy is simultaneously defined by the dividend policy, and the leverage policy (the coupon and the principal of the bond). When the corporate financial policy implies no default risk and no taxes, we show that the corporate financial policy is irrelevant and this irrelevance result holds for any probability measure. When the corporate financial policy implies now some default risk, we show that the value of the firm is a piecewise decreasing function of the dividend policy for any leverage policy, so that dividend policy affects the value of the firm. However, shareholders may not always have the incentives to implement this optimal dividend policy. We show that when the value of the assets is low, shareholders have an incentive to deviate from this optimal dividend policy, and we also study the resulting agency costs. We finally compare the resulting quantities of our model to the base case suggested by Huang and Huang (2003).

Chilean publicly listed companies are required by law to pay out a minimum 30% of distributable earnings after taxes as dividends on common stock. The study extends Lintner’s [Lintner, J (1956). Distribution of incomes of corporations among dividend retained earnings and taxes. American Economic Review, 46, 97–113.] model of dividend smoothing and Banerjee [Banerjee, S, VA Gatchev and PA Spindt (2007). Stock market liquidity and firm dividend policy. Journal of Financial and Quantitative Analysis, 42(2), 369–398.] logistic model of the likelihood of a firm paying a dividend to investigate the signaling, liquidity, corporate governance, and information risk-based theories of dividends. The results show that Chilean firms’ excess dividends are smoothed in relation to the prior period level of excess dividends, and lagged earnings do not drive excess dividends even though the mandatory minimum dividend is defined in terms of lagged earnings. This insight establishes that dividend decisions regarding the size of the excess dividend and the likelihood of paying an excess dividend are distinct from the mandatory dividend payment. Additionally, the size of excess dividends and their likelihood are higher at firms with higher growth opportunities, a result consistent with the use of excess dividends as a signaling device. Results also demonstrate that greater transparency is associated with a greater likelihood of paying an excess dividend, but transparency does not drive policy regarding the size of the excess dividend. Moreover, the corporate governance mechanism creditor monitoring influences the size of excess dividends but not the likelihood of paying excess dividends. These results have implications for securities regulators evaluating the pros and cons of a mandatory dividend policy to protect minority shareholders in emerging markets.

The main purposes of this paper are (i) to review investment, financing, dividend, and production policies in some detail; (ii) to discuss how these four policies are interrelated and integrate these four policies into a composite policy; (iii) to discuss the impacts of financing, dividend, and production policies on the beta coefficient; and (iv) to develop hypotheses to be used for empirical studies on the interaction among financing, dividend, and production policies. A theoretical relationship between beta coefficient and financing, dividend, and production policies is developed. This paper gives an overall view of the four policies used in finance education and research for the last five decades.

The primary purpose of this paper is to discuss how to use the active and interdisciplinary approaches to teach corporate finance. First, I describe the content and structure of the book entitled Corporate Finance and Strategy: An Active Learning Approach [Lee, CF, AC Lee, JC Lee and M Lee (2022). World Scientific]. Second, I discuss how the interdisciplinary approach is used to integrate corporate finance and strategy with other subjects. Third, I discussed how I require students to write three projects to make this course become active instead of passive to learn corporate finance. Finally, I discuss how students can benefit from active and interdisciplinary approach to learn finance.

The inability of investors and academics to consistently predict, and understand the behavior of financial markets has forced the search for alternative analytical frameworks. Analyzing financial markets as complex systems is a framework that has demonstrated great promises, with the use of agent-based models (ABMs) and the inclusion of network science playing an important role in increasing the relevance of the framework. Using an artificial stock market created via an ABM, this paper provides a significant insight into the mechanisms that drive the returns in financial markets, including periods of elevated prices and excess volatility. The paper demonstrates that the network topology that investors form and the dividend policy of firms significantly affect the behavior of the market. However, if investors have a bias to following their neighbors then the topology becomes redundant. By successfully addressing these issues this paper helps refine and shape a variety of additional research tasks for the use of ABMs in uncovering the dynamics of financial markets.

We investigate a little-known executive compensation device called dividend equivalents, which are provisions on some options and performance-based equity awards permitting executives to receive dividends on shares not owned and which they may ultimately never own. We find that up to 30% of sample firms have had this policy. While dividend equivalents may appear to exacerbate agency problems, they have a positive impact on cash holdings and help align incentives — firms with dividend equivalent policies tend to pay dividends, and firms that make dividend equivalent payments tend to pay higher dividends and keep lower excess cash.

This study examines the regulatory hypothesis for bank dividend payouts using a panel dataset of 229 Italian banks over the period 2005–2012. Regulatory hypothesis suggests that undercapitalized banks face more regulatory pressure for increasing capital levels by paying lower amount of dividends. Empirical results support the regulatory hypothesis by finding that the Italian banks having lower equity to total assets ratios or lower regulatory capital ratios retain more profits and pay lower amount of dividends. Results also suggest that dividend payer banks try to maintain dividends at previous level by not skipping or reducing dividends. Results further support that Fama and French (2001)'s three characteristics of dividend payers are also applicable to banks. That is, big-in-size, more profitable and low growth Italian banks pay higher amount of dividends. Findings of this study have important implications for recent regulatory proposals that suggest a direct regulation of dividends. A direct regulation of dividends, on one hand, and regulatory pressure on dividend payout decisions through capital requirements, on the other hand, may have unintended consequences for dividends as signaling and agency cost reducing tools.

Despite empirical research, the relationship between dividend policy and stock price volatility is continuously debatable. This study investigated the relationship between dividend policy and stock price volatility of Indian listed companies. The study examined 260 listed companies based on the reliable dividend-paying manners of nonfinancial companies listed on the Bombay Stock Exchange (BSE) for the financial period from 2014–2015 to 2020–2015. To analyze the data, this study used the panel data models: fixed effects, random effects, and the Hausman test. Finally, this study applied the fixed effect model after careful examination of multicollinearity, endogeneity, and causality issues related to the dataset. The analyses revealed a significant negative relationship between dividend payout and stock price volatility meanwhile, dividend yield and stock price volatility have a positive association. The study outcomes provide information for investors and managers about dividend decision. This study provides an extensive understanding of the emerging stock market fluctuation on the relationship with the dividend policy.

The decision on the magnitude of dividend has been identified to be highly related to the decisions to pay or not to pay dividends in formulating dividend policy. However, literature seems to be homogeneous and focused on examining the effect of ownership structure on dividend level or probability of paying dividends. Therefore, the paper examines the effect of ownership structure on dividend policy using Heckman’s two-stage technique. Utilizing 304 firm-year observations from industrial and consumer goods firms listed in the Nigerian Stock Exchange for the period within 2009-2019, the result shows that in the first stage, only foreign ownership has a negative significant effect on the probability of paying dividends. However, after accounting for a possible correlation between the probability of paying dividends and dividend pay-out, the result on the second stage exhibits a significant negative effect with block-holders and foreign ownerships on dividend policy while institutional ownership reveals a positive significant effect. The overall results show that the lower the foreign ownership the higher the possibility of paying dividends. Also, higher dividend pay-out is associated with the lower level of block-holders and foreign ownerships coupled with higher institutional ownership in listed industrial and consumer goods firms in Nigeria.

A large number of studies have examined issues of dividend policy, while they rarely consider the investment decision and dividend policy jointly from a non-steady state to a steady state. We extend Higgins’ (1977, 1981, 2008) sustainable growth rate model and develop a dynamic model which jointly optimizes the growth rate and payout ratio. We optimize the firm value to obtain the optimal growth rate in terms of a logistic equation and find that the steady-state growth rate can be used as the benchmark for the mean-reverting process of the optimal growth rate. We also investigate the specification error of the mean and variance of dividend per share when introducing the stochastic growth rate. Empirical results support the mean-reverting process of the growth rate and the importance of covariance between the profitability and the growth rate in determining dividend payout policy. In addition, the intertemporal behavior of the covariance may shed some light on the fact of disappearing dividends over decades.

This chapter analyzes the errors-in-variables problems in a simultaneous equation estimation in dividend and investment decisions. We first investigate the effects of measurement errors in exogenous variables on the estimation of a just-identified or an over-identified simultaneous equations system. The impacts of measurement errors on the estimation of structural parameters are discussed. Moreover, we use a simultaneous system in terms of dividend and investment policies to illustrate how theoretically the unknown variance of measurement errors can be identified by the over-identified information. Finally, we summarize the findings.

China GEM has injected new vitality into the development of China’s capital market since its official establishment in Shenzhen Stock Exchange in 2009. However, due to the short development time of the GEM market and the fact that most of the listed companies in the GEM are high-tech enterprises and high-growth companies, their share profit distribution shows certain particularity. Therefore, this paper aims to study the dividend distribution policies that affect GEM-listed companies to further enrich the theoretical results of dividend policy and promote the development of GEM-listed companies. Based on reviewing the literature on the influencing factors of dividend policy at home and abroad, this paper selects 2,145 sample data from 2018 to 2021, uses SPSS 26.0 statistical software as a tool, adopts empirical research methods, and then studies the factors affecting the dividend policy of GEM listed companies in China, and puts forward relevant suggestions according to the analysis results, aiming to further improve the dividend distribution of GEM listed companies and optimize the allocation of resources.

A large number of studies have examined issues of dividend policy, while they rarely consider the investment decision and dividend policy jointly from a non-steady state to a steady state. We extend Higgins’ (1977, 1981, and 2008) sustainable growth rate model and develops a dynamic model which jointly optimizes the growth rate and payout ratio. We optimize the firm value to obtain the optimal growth rate in terms of a logistic equation and find that the steady state growth rate can be used as the benchmark for the mean-reverting process of the optimal growth rate. We also investigate the specification error of the mean and variance of dividend per share when introducing the stochastic growth rate. Empirical results support the mean-reverting process of the growth rate and the importance of covariance between the profitability and the growth rate in determining dividend payout policy. In addition, the intertemporal behavior of the covariance may shed some light on the fact of disappearing dividends over decades.