Determinants Of Payout Policy Research Articles

Litigation risk and payout policy

PurposeThe purpose of the paper is to examine the relationship between litigation risk and payout policy.Design/methodology/approachThe authors employ various regression techniques including probit, logit and tobit regression methodologies to study the relationship between litigation risk (contemporaneous measures, litigation dummy) and payout policy (dividend payout likelihood and dividend yield). The authors also conduct several robustness tests.FindingsThe authors find that firms involved in a lawsuit have a lower propensity to distribute dividends to shareholders. In particular, the authors document a negative relationship between litigation risk and payout policy as measured by dividend payout likelihood and dividend yield. The results are robust to a series of robustness tests including using alternate regression specifications, alternate measures of litigation and payout policy, a propensity-score matched sample and using an instrumental variable.Originality/valueThe paper identifies another determinant of payout policy and documents another avenue whereby legal institutions affect corporate payout policy. The link between litigation risk and payout policy is of interest to the business community, financial economists, management and the investing public.

Determinants of payout policy and investment attractiveness of companies listed on the Warsaw Stock Exchange

Research background: Making decisions concerning the payout policy depends on many diversified neoclassical and behavioral determinants. Although these factors are well-described in the literature, there is still a research gap concerning the lack of a comprehensive impact model of payout policy determinants on the investment attractiveness of shares.
 Purpose of the article: The aim of this paper is to present the diverse nature of the relation-ship between different forms of cash transfer to the shareholders and in-vestments attrac-tiveness of public companies in the context of various determinants of payout policy. The possibility of achieving this objective was conditioned by the empirical verification of research hypothesis stating that the diversify of payout forms is accompanied by the different determinants of payout policy that condition an effective investment of stock investors? capital.
 Methods: The empirical research was conducted among the electromechanical companies listed on the Warsaw Stock Exchange in the years 2006-2015. The data for analysis were obtained from Notoria Service database and Stock Exchange Yearbooks. The calculations were carried out using the methodology of taxonomic measure of investment attractiveness, as well as dividend premium and share repurchase premium.
 Findings & Value added: The final conclusion of our research is that the companies con-ducting the payout policy in different forms of cash transfer differ in terms of many charac-teristics, such as: financial standing, market value, ownership structure, company?s size and age. Moreover, their investment attractiveness differs according to regularity of payment, stock exchange situation and shareholders? preferences. The value added of this paper is a new approach to the evaluation of capital investment with a special emphasis on the determinants of payout policy.

The Value of Financial Flexibility and Payout Policy

We propose a novel empirical measure for a firm’s value of financial flexibility and examine its impact on payout decisions. Studying listed firms from 23 countries over the 1998-2008 period, we find convincing evidence that the value of financial flexibility is an important determinant of payout policy. Specifically, firms with a high value of financial flexibility tend to limit or even avoid payouts. If such firms decide to disgorge cash, they prefer share repurchases to dividends. Overall, our results are consistent with the view that financial flexibility considerations determine the pecking order of payouts. JEL classification: G32, G35

Corporate Payout Policy and Changes in Housing Prices

We study how corporate payout policy responds to changing investor tastes for non-dividend over dividend paying stocks following an increase in housing prices. Exploiting the crossregional dispersion in housing prices within the U.S. market, we find a significant negative effect of growth in housing prices on local firm’s propensity to pay and to initiate dividends, and on its dividend yield, payout ratio as well as total payout. Such housing effect is particularly strong for small firms, young firms, volatile firms, and low profitability firms. Our findings are insensitive to the choice of model specification and estimation method. They are also robust to controlling for several firm-specific variables, macro-economic variables, market sentiment, and dividend premium (proxy for dividend catering). In contrast to recent criticisms against catering theory, we find that dividend premium loads positively at state level. Moreover, we report weaker market reactions to dividend changes when local housing prices increase. This study is the first to establish a relationship between growth in housing prices and corporate policy decisions. It also introduces geography as a determinant of payout policy.

Payout policy and cash-flow uncertainty

The importance of cash-flow uncertainty in payout policy has received little attention in empirical studies, while survey studies such as [Lintner, J., 1956. Distribution of incomes of operations among dividends, retained earnings, and taxes. American Economic Review 46, 97–113.] and [Brav, A., Graham, J., Harvey C., Michaely, R., 2005. Payout policy in the 21st century. Journal of Financial Economics 77, 483–527.] indicate its importance. With worldwide firm-level data, we present evidence that cash-flow uncertainty is an important cross-sectional determinant of corporate payout policy. Our results show that across countries, cash-flow uncertainty, as proxied by stock return volatility, has a negative impact on the amount of dividends as well as the probability of paying dividends. The impact of cash-flow uncertainty on dividends is generally stronger than the impact of other potential determinants of payout policy—such as the earned/contributed capital mix, agency conflicts, and investment opportunities. We also find that the effect of cash-flow uncertainty on dividends is distinct from the effect of a firm's financial life-cycle stage.

Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

Using the 2003 reduction in dividend tax rates to identify an exogenous change in the after-tax value of dividends to shareholders, we test whether stock holdings among company executives is an important determinant of payout policy. We have three primary findings. First, we find that when top executives have greater stock ownership, and thus an incentive to increase dividends for personal liquidity reasons, there is a significantly greater likelihood of a dividend increase following the 2003 dividend tax cut, whereas no such relation existed in the prior decade when the dividend tax rate was much higher. This finding is strongest for dividend initiations, and is robust to a rich set of firm and shareholder characteristics. Second, we provide evidence that approximately one-third of the firms that initiated dividends in 2003, a higher share than in previous years, scaled back share repurchases by an amount sufficient to reduce their total payouts. This offset potentially raised the total tax burden on shareholders at these firms because share repurchases are still tax-advantaged relative to dividends. Third, we find that while dividend-paying firms with a larger fraction of individual shareholders had greater stock price gains in response to the tax cut, the market appears to have at least partially anticipated that executives with high stock ownership might raise dividends at the expense of share repurchases and increase the average tax burden for individuals, which is consistent with the presence of agency conflicts within the firm.

Cross-Country Determinants of Payout Policy: A Survey of European Firms

We survey managers from 16 European countries to examine cross-country determinants of payout policy. We find that European managers' views on dividend policy are driven largely by factors similar to that of their U.S. peers. They strongly agree with Lintner's findings that dividends are smoothed out and are difficult to cut, although they follow different dividend targets than a fixed payout ratio. A majority of European managers, however, consider repurchases as a tool of flexibility rather than a substitute for dividends. Our cross-country analysis does not support La Porta, Lopez, Shielfer and Vishny's (2000) contention that dividend policy is influenced primarily by the quality of legal system. Instead, we find that dividend policy is determined by a complex interaction of the firm's ownership structure of the firm and the legal and institutional structure of its home country. Repurchase policy, on the other hand, is influenced primarily by tax and institutional ownership variables.