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"Dividend"
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Dividend Growth Predictability and the Price-Dividend Ratio
Asymptotic tests over-reject the null of no predictability in present-value models. We develop a nonparametric testing approach in state-space models, implying reliable finite sample inference under weak assumptions on price-dividend ratio and dividend shocks. We find sharp evidence of return predictability in postwar U.S. data but less consistent evidence of dividend predictability, which is significant only using cash-flow proxies reflecting information from mergers and acquisitions. These findings reconcile the diverging conclusions of present-value models and common predictive regressions in a way that is robust to the choice of the predictive variables, the sample period, and alternative cash-flow proxies.
Journal Article
Dividend Growth Predictability and the Price-Dividend Ratio
Asymptotic tests over-reject the null of no predictability in present-value models. We develop a nonparametric testing approach in state-space models, implying reliable finite sample inference under weak assumptions on price-dividend ratio and dividend shocks. We find sharp evidence of return predictability in postwar U.S. data but less consistent evidence of dividend predictability, which is significant only using cash-flow proxies reflecting information from mergers and acquisitions. These findings reconcile the diverging conclusions of present-value models and common predictive regressions in a way that is robust to the choice of the predictive variables, the sample period, and alternative cash-flow proxies.
Journal Article
Repaying an Unlawfully Paid Dividend
It is well settled that directors are jointly and severally liable for an unlawfully paid dividend, being one that is not paid out of distributable profits. Strict rules apply to the meaning of distributable profits and the authorization of the payment of a dividend. What is not so clear is when a member may retain an unlawfully paid dividend. Section 847 of the Companies Act 2006 (CA 2006) indicates that a member must repay it if he knows that it is unlawfully paid, though it is not clear what constitutes ‘knowing’ in this content, or what the position should be if a member does not immediately know if the payment is unlawful, but subsequently discovers that it is. Case law is not especially helpful in dealing with this point. It is suggested that a solution to this gap in the law may be found in the precise wording of section 847, and that a member’s liability to repay should be limited to a period of six months after payment (similar to an unfair preference). Directors, Liability, Shareholders, Dividends, Unlawful distribution
Journal Article
Dividend Smoothing and Predictability
The relative predictability of returns and dividends is a central issue because it forms the paradigm to interpret asset price variation. A little studied question is how dividend smoothing, as a choice of corporate policy, affects predictability. We show that even if dividends are supposed to be predictable without smoothing, dividend smoothing can bury this predictability. Because aggregate dividends are dramatically more smoothed in the postwar period than before, the lack of dividend growth predictability in the postwar period does not necessarily mean that there is no cash flow news in stock price variations; rather, a more plausible interpretation is that dividends are smoothed. Using two alternative measures that are less subject to dividend smoothing-net payout and earnings-we reach the consistent conclusion that cash flow news plays a more important role than discount rate news in price variations in the postwar period.
This paper was accepted by Wei Xiong, finance.
Journal Article
Determinants of dividend policy: evidence from an emerging and developing market
Purpose
The purpose of this paper is to identify the determinants of dividend policy in an emerging and developing market.
Design/methodology/approach
The study employs a quantitative approach using 191 Sri Lankan firms and 1,337 firm-year observations as the sample. The authors apply a Binary Logistic Regression model to uncover the determinants of the propensity to pay dividends, and a Fixed Effect Panel Regression to investigate the determinants of dividend payout.
Findings
The authors identify past dividend decision, earnings, investment opportunities, profitability, free cash flow (FCF), corporate governance, state ownership, firm size and industry influence as the key determinants of propensity to pay dividends. In addition past dividends, investment opportunities, profitability and dividend premium are identified as the determinants of dividend payout. Moreover, there is a feedback between dividend yield and profitability in one lag and between dividend yield and dividend premium in two lags, as short-term relationships. Hence, past dividend decision or payout, profitability and investment opportunities are a common set of determinants with implications for both propensity to pay dividends and its payout. The findings support theories of dividends such as signaling, outcome, catering, life cycle, FCF and pecking order.
Practical implications
The findings are important for investors, managers and future research. Investors should focus on the determinants identified by our study when making investment decisions whereas managers should practice the same when formulating appropriate dividend policies for their firms. Future research should rely on propensity to pay dividends and its payout simultaneously to promote a theoretical consensus on the dividend determinant puzzle.
Originality/value
This is the first study that investigates determinants of propensity to pay dividends and dividend payout along with short-term relationships in a single study.
Journal Article
Is the Implementation of the Taxation Omnibus Law Important for Dividend Policy?
This study investigates the impact of the implementation of Indonesia’s Taxation Omnibus Law on corporate dividend policy, with a particular focus on the moderating role of institutional ownership. Utilizing panel data regression with a Random Effects Model approach, the analysis is conducted on 37 companies listed in the LQ-45 index over the period 2017–2024. The empirical findings reveal that the tax reform positively influences dividend yield, yet has no significant effect on dividend per share (DPS). Moreover, the interaction between institutional ownership and tax reform weakens the impact of the reform on DPS. Theoretically, these results highlight that the effectiveness of tax policy reforms is contingent upon a firm’s ownership structure. From a policy perspective, the findings underscore the need for targeted tax incentives that align with corporate governance characteristics to effectively influence dividend distribution decisions. The novelty of this research lies in its focus on the Taxation Omnibus Law and its implications for dividend payout behavior, while incorporating institutional ownership as a moderating variable—an area that has received limited attention in prior studies on tax reform and corporate financial policy.
Journal Article
Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration
We examine the association between board gender diversity and corporate dividend payout. Our results suggest that although board gender diversity impacts positively on dividend payments, this is only conspicuous in widely held firms. However, when ownership concentration is high, board gender diversity reduces dividend payments. We demonstrate that women directors have the greatest impact on dividend payments when there are three or more women on the board. Our results indicate that the financial crisis period was associated with high dividend payments; however, women directors restrained the payment of dividends during the crisis period. These results suggest that board gender diversity may be an effective CG mechanism for alleviating principal-agent conflicts but not principal-principal agency conflicts. Our results are robust to endogeneity, as well as alternative proxies and estimation techniques.
Journal Article
Do Co-Opted Directors Influence Dividend Policy?
We explore how co-opted directors affect dividend policy. Co-opted directors are those appointed after the incumbent chief executive officer (CEO) assumes office. Our results show that coopted directors lead to a weaker propensity to pay dividends and, for dividend-paying firms, significantly lower dividend payouts. We also show that board co-option has more explanatory power for dividend policy than does the traditional measure of board effectiveness, that is, board independence. Exploiting the passage of the Sarbanes-Oxley Act as a natural experiment, we show that the effect of board co-option on dividend policy is more likely causal, rather than merely an association.
Journal Article
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
).
Journal Article