Cash Dividend Changes Research Articles

Market reaction to the annual cash dividend changes in Pakistan

Market reaction to the annual cash dividend changes in Pakistan

Market reaction to the annual cash dividend changes in Pakistan

Market reaction to the annual cash dividend changes in Pakistan

The Relationship between Both Accounting Earnings and Cash Flows, and Cash Dividends for Commercial Banks Operating in Jordan

Purpose: The paper aims to examine the relationship between both accounting earnings and cash flows from operating, investing, and financing activities from one side, and cash dividends from another side for commercial banks operating in Jordan. Design/Methodology/Approach: In this paper, we apply the analytical approach to test hypotheses using the published financial statements for the period (2010-2018). The data is analyzed by employing the statistical program (SPSS). Researchers mainly use the (OLS) multiple linear regression approach to analyzing the study sample's financial data, which consists of (13) Jordanian commercial Banks listed on the Amman Stock Exchange. Findings: The study concludes that there is no relationship between changes in operating, investing, and financing cash flows and changes in cash dividends of commercial banks operating in Jordan. However, there is a statistically significant relationship between changes in earnings and changes in cash dividends. Furthermore, the results show that the size of liabilities affects only the relationship between accounting earnings changes and changes in cash dividends. Practical Implications: Jordanian commercial banks should logically link cash flows and accounting earnings when making cash dividend decisions, as relying on cash flows is important in knowing their ability to fulfill obligations and determining liquidity. Originality/Value: Several controversial studies have examined the ability of earnings and cash flows to judge non-financial firms' performance. The value of this paper is to report the first direct test of the link between both accounting earnings and cash flows from operating, investing, and financing activities from one side, and cash dividends from another side for commercial banks operating in Jordan, and the effect of liabilities on this relationship.

The Announcement Effect of Cash Dividend Changes on Share Prices: Evidence from Dhaka Stock Exchange

This paper investigates the announcement effect of cash dividend changes on share prices listed on the Dhaka Stock Exchange (DSE). Standard event study methodology is used to investigate the effect of an event window of [Formula: see text]3 to [Formula: see text]3 days relative to dividend announcement date. Cumulative abnormal returns (CAR) have also been measured for a 41-day window around announcement date. This study finds that shareholders earn only normal return on the announcement of dividend increases and no changes. However, a significant positive abnormal return (AR) is observed in the preannouncement period for a dividend increase which indicates some kind of information leakage before the announcement is actually made. The announcement of dividend decrease results in a significant negative AR on the announcement day and persists even 20 days after the announcement. Significant ARs following dividend decrease announcement reveal DSE is not a semi-strong form of efficient market.

Earnings Management and the Signalling of Cash Dividend Changes for Future Profitability

Earnings Management and the Signalling of Cash Dividend Changes for Future Profitability

Growth, governance and corporate payout policy

AbstractWe show that when growth opportunities decreased following the end of the Cold War, defence firms responded by increasing total payout. This change in policy was largely driven by increased stock buybacks as opposed to changes in cash dividends and primarily by firms that faced stronger external governance. On the other hand, firms with weaker internal governance that were more severely affected by the reduced growth chose to alter the mix of payout at the expense of repurchases. Overall, our findings (i) demonstrate a causal link where exogenous shocks to growth cause payout policy changes, (ii) support the role of internal governance in payout policy design where entrenched managers pre‐commit to higher dividends and (iii) emphasize the monitoring role of external governance in mitigating agency costs of free cash flow.

An empirical analysis of stock returns around dividend changes

This paper documents significant drift in stock returns following announcements of changes in cash dividends. The magnitude is (i) smaller for increases than for decreases, (ii) inversely related to firm size and positively to dividend yield change, and (iii) concentrated in the first quarter. Beta changes do not explain the drift and it is robust in various subperiods. Next it is shown that dividend increases are positively autocorrelated especially every fourth quarter. The prices keep reacting to future announcements as if the market ignores these autocorrelations. Dividend decreases exhibit weak autocorrelation and the returns are negative for the following three announcements.

POST‐ANNOUNCEMENT DRIFTS ASSOCIATED WITH DIVIDEND CHANGES

AbstractIn this paper I assess the presence of post‐announcement drifts associated with dividend changes after controlling for earnings surprises. All quarterly cash dividend changes announced by firms listed on the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) from 1974 through 1989 are examined. The results show that significant post‐announcement drifts associated with dividend changes are present after controlling for earnings surprises. However, the results are not conclusive on whether the market fully incorporates the simple time‐series properties of dividends.

Dividend behavior surrounding LIFO adoption

AbstractThis study investigates the influence of LIFO adoption on changes in cash dividends. Descriptive studies of dividend policy have found that changes in cash dividends are positively associated with both operating cash flows and accounting earnings. LIFO adoption is interesting because it typically decreases earnings while increasing cash flows through deferral of U.S. taxes. We regress changes in annual cash dividends against a proxy for the earnings effect and the cash flow effect of LIFO usage, as well as additional control variables. The model is estimated for each of five years, centered on the adoption year, using a sample of 361 LIFO adopters. The results suggest that adoption year changes in cash dividends are associated with the negative earnings effect rather than the positive cash flow effect of LIFO adoption.

THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND CASH FLOW: AN EMPIRICAL ANALYSIS

It is often assumed that cash flow affects dividend payout. This study provides evidence on the incremental information content of cash flow numbers over Profits and Previous Year's Dividends (Lintner's model) in explaining changes in cash dividends. It further examines whether different measures of cash flow differ in information content for dividend‐increasing and dividend‐decreasing firms. Lintner's model of dividend changes is robust across firms with either dividend increases or decreases. The null hypotheses, that no definition of cash flow adds to the model, could not be rejected for any of the definitions.

Regular Dividend Announcements and Future Unexpected Earnings: An Empirical Analysis

AbstractPrevious studies have interpreted stock price reaction to dividend announcements as being consistent with the hypothesis that any changes are forecasts of future corporate profits. Recent studies seem to provide evidence to this effect. This study provides additional empirical evidence pertaining to the issue of whether quarterly cash dividend announcements convey useful information about a firm's future profitability, beyond that contained in contemporaneous quarterly earnings announcements. The association between unexpected changes in quarterly dividends and unexpected accounting earnings in subsequent quarters is examined, after controlling for information contained in past and current earnings series. The results, based on a large sample of regular quarterly cash dividend changes, indicate that firms that increased (decreased) their dividends realized, on average, greater (smaller) unexpected accounting earnings in subsequent periods than firms that did not change their dividends.

Stock repurchases: A further test of the free cash flow hypothesis

This study explores the empirical puzzle currently existing regarding the observed positive stock price reaction associated with self-tender offer announcements. The puzzle stems from Lang and Litzenberger's (1989) findings that Jensen's (1986, 1989) free cash flow (overinvestment) hypothesis is consistent with changes in cash dividends, whereas Howe, He and Kao's (1992) study of analogous cash events (i.e., self-tender offers and specially designated dividends) finds no support for the free cash flow hypothesis. By stratifying our sample of firms repurchasing their stock by the source of the firm's free cash flow (overinvestment) problem, additional light is shed on the interaction between the signalling and free cash flow theories.

Empirical Evidence on Dividends as a Signal of Firm Value

The role of dividends in firm valuation continues to be a theoretical puzzle as well as an empirical obsession with economists. The pioneering work by Modigliani and Miller (MM) ([32], [29]) is the archetype of the theoretical dilemma. Whereas the authors proved convincingly the irrelevance of dividend policy to firm value within a perfect capital market, they tempered their irrelevance proposition with what is usually referred to as the “information content of dividends” (ICD) hypothesis. In a more scientific sense, this hypothesis should be labeled as a conjecture, since it is essentially an ad hoc observation that dividends may convey information to the capital market concerning a firm's future earnings potential. Even though the ICD hypothesis was not derived from a well-specified economic model, it has, nevertheless, been subjected to a plethora of empirical studies. In general, these studies have focused upon the precise influence of dividend changes upon a firm's common stock price. Overall, the results can be described as being supportive of the notion that stock price movements are positively correlated with cash dividend changes. This correlation, of course, is consistent with the ICD hypothesis.

A Reexamination of Stock Splits Using Moving Betas

WHEREAS THE COSTS OF STOCK SPLITS are readily apparent (e.g., stock issue taxes, listing fees, mailing costs), the benefits accruing to holders of split shares are less evident.' Several rationale for stock splits have been offered including: (1) increased of firms' shares, (2) conveyance of regarding superior investment opportunities, (3) increased ownership base to avoid mergers, (4) increased product sales, and (5) improved employer/employee relations.2 Market lore dictates that the first argument, the marketability criterion, is paramount. Its proponents maintain that stock splits, per se, benefit shareholders by increasing securities' popularity and via bringing share prices into more favorable trading ranges.3'4 The finance literature has concentrated upon the second, the information content, argument as the motivating force behind stock splits. Advocates of this position contend that stock splits only provide shareholders with lasting benefits when followed, or accompanied, by favorable financial such as superior investment opportunities expected to result in increased future earnings and cash dividends. As early as 1956, C. Austin Barker [4] examined stock splits and showed that rates of return are substantially higher to holders of split shares undergoing cash dividend increases, but not to holders of split shares not culminating in increased total cash dividends. Perhaps the best known information content study was undertaken by Fama, Fisher, Jensen, and Roll [8] (hereafter FFJR). Using the capital asset pricing model developed by Sharpe [16] and Lintner [13], FFJR confirmed Barker's earlier findings regarding the effect of cash dividend changes. To ascertain each split security's abnormal performance around the time of a split (i.e., its rate of return unaccounted for by the security's ordinary risk-return relationship vis-a-vis the market), FFJR estimated systematic risk after eliminating

A REEXAMINATION OF STOCK SPLITS USING MOVING BETAS

WHEREAS THE COSTS OF STOCK SPLITS are readily apparent (e.g., stock issue taxes, listing fees, mailing costs), the benefits accruing to holders of split shares are less evident.' Several rationale for stock splits have been offered including: (1) increased of firms' shares, (2) conveyance of regarding superior investment opportunities, (3) increased ownership base to avoid mergers, (4) increased product sales, and (5) improved employer/employee relations.2 Market lore dictates that the first argument, the marketability criterion, is paramount. Its proponents maintain that stock splits, per se, benefit shareholders by increasing securities' popularity and via bringing share prices into more favorable trading ranges.3'4 The finance literature has concentrated upon the second, the information content, argument as the motivating force behind stock splits. Advocates of this position contend that stock splits only provide shareholders with lasting benefits when followed, or accompanied, by favorable financial such as superior investment opportunities expected to result in increased future earnings and cash dividends. As early as 1956, C. Austin Barker [4] examined stock splits and showed that rates of return are substantially higher to holders of split shares undergoing cash dividend increases, but not to holders of split shares not culminating in increased total cash dividends. Perhaps the best known information content study was undertaken by Fama, Fisher, Jensen, and Roll [8] (hereafter FFJR). Using the capital asset pricing model developed by Sharpe [16] and Lintner [13], FFJR confirmed Barker's earlier findings regarding the effect of cash dividend changes. To ascertain each split security's abnormal performance around the time of a split (i.e., its rate of return unaccounted for by the security's ordinary risk-return relationship vis-a-vis the market), FFJR estimated systematic risk after eliminating