Dividend Changes Research Articles

Do dividends and share repurchases convey information about financial strength? An exploration of the disparities between banks and industrial firms

AbstractDiffering from prior literature, this article suggests dividends are positively associated with financial strength for both financial institutions (i.e., banks) and non‐financial firms (i.e., industrials), and that this relationship is much more pronounced for banks. We also find that the signaling impacts of dividend changes on financial strength are asymmetric for these two groups as a decrease (increase) in dividends is more powerful than an increase (decrease) for banks (industrials). This suggests that dividend cuts send a more significant negative signal of bank financial strength than similar decreases by industrial firms, and that dividend increases say more about industrials' improvements in financial strength than those by banks. Similar to dividends, share repurchases are indications of financial strength for industrials but not for banks. This suggests that share repurchases serve more as a buffer (substitute) of dividends for banks (industrials).

Dividend signalling and investor protection: An international comparison

This study examines whether dividend changes signal future earnings growth in non-US markets following the Ham et al. (2020) methodology and whether the strength of the earnings signal varies with the level of investor protection. Based on the notion that weak investor protection reduces the cost of cutting dividends and as such increases managers’ discretion to change dividends, we expect that the strength of the earnings signal in dividend increases becomes weaker as investor protection decreases. In a sample drawn from 38 different markets, our results indicate while dividends can signal future earnings in non-US markets, the strength of the signal is weaker than that in the US. In line with our predictions, we find that for firms in a strong investor protection environment, dividend changes are correlated more strongly with subsequent earning changes than is the case for firms in weak investor protection environments.

How do stock markets react to dividend announcements during the COVID-19 pandemic? Evidence from the GCC markets

PurposeThis study aims to investigate how stock markets responded to corporate dividend policy changes during the COVID-19 pandemic in the Gulf Cooperation Council (GCC) countries. Likewise, it explores how efficiently market prices incorporate the news by examining the speed of stock price adjustment to various dividend announcements.Design/methodology/approachThe sample includes 741 dividend announcements from 2017 to 2021 made by 326 firms listed in the stock markets of the GCC countries. A series of regression analyses examine how dividend announcements influence the market reaction during the COVID-19 pandemic, controlling for other well-documented firm characteristics.FindingsThis study reveals an adverse stock price reaction to all the dividend announcements in most GCC markets. The findings also show strong asymmetric effects of COVID-19 on how the markets react to different dividend changes. Likewise, the authors show that investors tend to underreact to the good news of dividend increases amid hard times of crises due to prevailing uncertainty and bearish sentiment. Besides, regression results reveal that firms with dividend reductions during the pandemic experience less adverse market reactions than dividend-decreasing firms prepandemic.Practical implicationsFor firms, the findings confirm the role that corporate dividend policy can play in conveying signals to investors, especially during hard times of crises and turbulences, thereby affecting their share price. For policymakers, the results substantially affect market efficiency and firm valuation in the GCC markets.Originality/valueThis study is not only one of the first few attempts to scrutinize how the pandemic has affected the market reaction to changes in corporate dividend policies but also, to the best of the authors’ knowledge, it is the first to examine how corporate dividend policy could affect stock markets during COVID-19 in the context of GCC markets.

Share Repurchase and Cash Dividend - Substitute or Complement? Analysis from the Vietnam Securities Market

Purpose: The purpose of this report was to assess the relationship among the cash dividend payout and share repurchase, through essential cash distribution methods adopted by Vietnamese publicly listed companies. The complementary along with substitute relationship from these financial practices might contribute to determine the financial managerial behavior in Vietnam as a leading development emerging market within Asia Pacific area. Design/methodology/approach: The research applied regression analysis technique to determine the nonlinear relationship among the share repurchase and cash dividend. Findings: The research found the nonlinear relationship among the change in dividend along with the repurchase yield. Moreover, the research found a significant positive correlation which reveals the prominent of complementary impact in the complete sample. The results and estimations of the research are consistent in robustness tests. There is a nonlinear relationship between the change in dividend and the repurchase yield. In addition, a significantly positive correlation reveals the dominant of complementary effect in the whole sample. The results are consistent in robustness tests. Research limitations/implications: It is crucial to ensure that there is an essential scope for the enhancement which remains and it is a component of the future study such as the influence of the stock dividend through various practice while companies are partly dominated or effected by the government, through the characteristics as the emerging markets such as Vietnam, as they are interesting topics which need further study. Originality/value: Through a comprehensive analysis, the study outcomes propose that Vietnamese listed companies should meticulously assess their future growth concerning share repurchase and other capital distribution activities. This strategy should take into account the involvement of various stakeholders and their benefit.

Behavioural finance and dividend changes as predictors of future profitability: A literature review

This paper's primary goal is to present a significant element of the current dividend policy challenges from the perspective of behavioral finance. Given that dividend policy is one of the more contentious subjects in corporate finance, and because of this, scholars in the field have recently attempted to address the dividend policy conundrum by utilizing behavioral finance viewpoints. From the standpoint of behavioral finance, the study provides a general overview of the literature on dividend policy. This work offers a review of the literature. Together with behavioral components, it summarizes the main theoretical justifications for the dividend policy from the standpoint of behavioral finance.

The National Team: Stock market interventions and corporate catering behavior

We examine corporate catering behavior following the Chinese government's stock market interventions in 2015, which result in significant stock overvaluation. The government's direct share purchases cause higher levels of horizontal agency conflicts between the controlling and minority shareholders, and the affected firms are more likely to cater to the controlling shareholders and top executives' aversion to receiving overvalued stocks. We focus on the changes in stock dividends and equity-based executive compensation and find evidence consistent with the catering hypothesis while employing difference-in-difference approach. Our study demonstrates the intricate interactions between state interventions and corporate decisions.

Are dividends impacted by the timing of macro data releases? Case of WIG, DAX and S&P500

Purpose: This paper attempts to reveal, on the one hand, whether dividend paid by dividend-paying companies from the WIG, DAX and S&P500 indices for the period 2017-2022 were characterized by positive dynamics of change in real terms, and whether decisions on the level of dividends recommended for payout are more determined by macroeconomic factors from the end of the year, in which the company generated financial results, or from the period, in which dividend decisions were made. Design/methodology/approach: The research objective of this paper is accomplished by means of a thorough literature analysis. In the area of statistical methods, the authors refer to classical methods of correlational analysis, with a focus on non-parametric methods (Spearman’s rho and Kendall’s tau). Findings: The analyses carried out made it possible to indicate that, for companies listed on the FSE and WSE, the only quantity correlated with changes in dividends paid is the PMI index, with a negative correlation for Polish companies and a positive one for German companies. This correlation occurs only if one considers December macroeconomic data readings. On the other hand, for NYSE-listed entities, statistically significant relationships were obtained for the PMI index (negative), the inflation rate (negative) and interest rates (positive). With the exception of interest rates, the correlations apply to both December readings and those from May of the dividend payout year. At the same time, the results indicate different decisions made by the boards of US, German and Polish companies in the face of the SARS-CoV-2 pandemic. Research limitations/implications: The study was conducted on a limited number of analyzed companies and for a limited time range. Therefore, it could be biased, due to the deterministic stock sampling method and the research period. Practical implications: Expanded knowledge of the impact of the timing of publication of macroeconomic parameters on decisions on dividend payouts and their amount. This knowledge is important for both investors and investment funds’ boards. Consequently, one can make better investment decisions. Social implications: Among the paper’s social implications, the most important appears to be a possible change in the investors’ attitude towards dividend-paying companies that not only pay dividends systematically, but also have positive dynamics of change, and the realization that dividend decisions are affected not only by a number of determinants, but also by the timing of their occurrence. Ultimately, investors’ needs could be better addressed. Originality/value: The paper evaluates the impact of macroeconomic determinants on changes in dividend payouts by companies for the period 2017-2022. What is new in the paper is the analysis of whether the timing of the publication of macroeconomic parameters significantly affects the level of dividends paid, thereby filling our knowledge gap. Keywords: dividend-paying companies, determinants of dividend policy, macroeconomic indicators, inflation. Category of the paper: Research paper

How COVID-19 Affected Corporate Dividend Decisions: Novel Evidence from Emerging Countries

Abstract The study aims to investigate the corporate dividend policy decisions in emerging countries during the COVID-19 pandemic. Our sample consists of 5,869 publicly listed firms from 29 emerging countries to explicate the observed trends in dividend policy during the pandemic. Logistic regressions are used to investigate the main factors that drive the propensity to change dividend payouts. Our analysis reveals that most firms opted to either increase or decrease their dividends, with a minority proportion deciding to maintain dividends. Notably, our findings demonstrate that firm profitability is the main driver of all types of dividend changes, except when firms opt to maintain or decrease dividends. Moreover, we find that when firms reduce dividends by over 70%, profitability emerges as a crucial determinant, thus bolstering the signaling hypothesis. The results are robust to sample size sensitivity and different levels of dividend changes. The findings of the study might have practical implications for corporate managers and policymakers in designing dividend decisions and policies under uncertain conditions. This research underscores the impact of the COVID-19 pandemic on corporate dividend policy in emerging countries and emphasizes the need to consider the level of dividend changes in exploring the dividend puzzle.

What do dividend changes reveal? Theory and evidence from a unique environment

We explore the reasons behind corporate dividend changes and factors driving those changes during 2001–2021 in Oman, as a unique environment. The implications of our paper contrast with the relevant existing literature which demonstrates a positive correlation between dividends and stock prices in Oman, in support of the signaling theory. Employing multiple methods and after controlling for the nonlinearity in the profitability process, we find virtually no evidence for the signaling theory of dividends for dividend reductions, in terms of future earnings. Furthermore, our analysis affirms the importance of current profitability in influencing the magnitude of and the propensity to change (increase or decrease) dividends in listed Omani firms. We also find that the catering theory of dividends does not have any explanatory power on dividend changes. Further, firms’ life-cycle status and real investments have been found to significantly affect the decision to change dividends. Our results, which depart from the findings in the conventional literature, can be attributed to the distinct institutional features in Oman. Our game-theoretic model of dividend signaling/dividend catering provides some explanations.

Dividend hibernation and future earnings: When no dividend news is good news

Firms frequently enter dividend hibernation, periods during which dividends remain unchanged for consecutive quarters. We employ a dividend event framework to show that, compared to non-hibernating firms, hibernators experience higher unexpected future earnings growth for up to five years by reducing underinvestment. We construct an index of adverse selection measures and find that hibernating firms are more opaque, indicating that the information gap between insiders and outsiders widens when there is no change in dividends. Extended hibernation episodes increase the opaqueness, while dividend changes after prolonged periods of fixed dividends reduce the information gap more promptly.

Nexus between Dividend Payment and Earnings Quality of Quoted Manufacturing Firms in Nigeria

The objective of this study is to ascertain the nexus between dividend payment and earnings quality of quoted manufacturing firms in Nigeria. The study adopted the ex-post facto research design. It covered a period of ten years spanning from 2012 to 2021. The population of the study was44 quoted manufacturing firms out which 32 were selected as sample size using purposive sampling techniques. The data were collected from financial statement of the selected firms listed on the Nigeria Exchange Group as at 31 st December, 2021. The data were analyzed using Ordinary Least Square and operated by E-Views 11. The results showed that there is a significant and positive relationship between dividend-paying status and earning quality, there is a significant and negative relationship between dividend size and earning quality, there is a significant and positive relationship between dividend changes and earning quality, and there is a significant and negative relationship between dividend persistence and earning quality. This study concluded that there is nexus between dividend payment and earnings quality of listed manufacturing companies in Nigeria. It was recommended that, managers should maintain an increase in the value of the (cash) dividends paid divided by the net income of the year. Shareholders should watchfully evaluate the size of dividend payments: This is because managers paying bogus dividends may mask unhealthy firm performance. Managers should adopt a fluctuating rather than static dividend policy for its positive signaling effect on earnings quality. Investors should prioritize a high dividend payout since dividends offer assurance regarding the company's financial stability. The shareholders and policy regulators should be watchful of companies consistently declaring profits even in unstable times.

Behavioral Risk Preferences and Dividend Changes: Exploring the Linkages with Prospect Theory Through Empirical Analysis

In this research paper we used prospect theory (PT) to analysis the association between risk and dividend changes. We used global index (24 countries index data) data from 2000 to 2021. To improve PT, we suggest a novel alternative to the traditional reference point. Reference was established by tracking dividend growth or declines across sectors. The assumption is that before the end of the period, all the firms’ industrial dividend changes have to be known. In this research we calculated our reference point separately for individual years because the mean of industry dividend changes in the previous year. We utilised GMM estimation for the robustness test and split our sample up by business size, and we used 3 empirical methods (pooled regression, industry regression, and cross-sectional regressions analysis). Using the aforementioned empirical methods, we determined that dividend fluctuations are significantly correlated with a decrease in a company's risk. These findings imply that companies whose dividend changes are more than (less than) their benchmark will take on more (less) risk.

Exploring the response of regional metabolism to population quality change in the late demographic dividend - Evidence from China

China's population and carbon emissions will reach two peaks in 2030. Especially in the late stage of demographic dividend, it is necessary to revisit the relationship between population and energy. Metabolism is a critical perspective to help understand the population-energy relationship. This paper establishes a new paradigm for assessing the impact of population quality change on regional metabolism based on panel data from 2003 to 2019 in China. We measure the population quality index (PQI) using the Projection Pursuit method from four aspects and regional metabolic efficiency (RME) using emergy analysis and Index-DEA. Then, the Tobit model is used to explore the impact of population quality change on regional metabolism from a multi-scale perspective. The results show that the influence has some variability at different scales. From the total sample, the response of regional metabolism to population quality is significantly positive. For different PQI regions, the RME has a positive response to PQI in both, but this response is more obvious in advanced PQI regions. For regions in different locations, RME has positive response to PQI in both East and West, but there is no obvious response in the Central. These findings are closely related to global sustainable development.

The Impact of the Demographic Dividend on the Economy

Demographic dividend means abundant labor supply, huge potential domestic consumption market and abundant financial support for a country's economic development. However, with the passage of time, the demographic dividend will continue to change. This paper takes China as an example to study the impact of demographic dividend changes on economic development. At present, China is gradually entering an aging society, and the window period for the release of the demographic dividend has begun to close, which means that the benefits brought by the demographic dividend to China's economic development are gradually disappearing. This paper attempts to study the relationship between the demographic dividend and economic development, and provide relevant policy suggestions through the research, so as to provide specific policy suggestions for extending the demographic dividend and promoting the positive impact of the demographic dividend on economic development.

Using 10-K text to gauge COVID-related corporate disclosure.

During the pandemic era, COVID-related disclosure has become quite critical for shareholders and other market participants to understand the uncertainties and challenges associated with a firm's operation. However, there is no well-grounded and systematic measure to gauge the intensity of COVID-related disclosure and its plausible impact. Therefore, this study develops and validates various COVID-related disclosure measures. More specifically, using a sample of publicly listed U.S. firms and applying natural language processing (NLP) on 10-K reports, we have developed two types of COVID dictionaries (or COVID-related disclosure measurement tools): (a) overall COVID dictionary (count of all COVID-related words/phrases) and (b) contextual COVID-dictionary (count of COVID related words/phrases preceded or followed by positive, negative tones, or financial constraints words). Subsequently, we have validated both types of COVID dictionaries by investigating their association with corporate liquidity events (e.g., dividend payment, dividend change). We confirm that the overall COVID dictionary effectively predicts a firm's liquidity event. We find similar results for contextual COVID dictionaries with a negative spin (i.e., COVID disclosures with a negative tone or an indication of financial constraints). Our results further show that better-governed firms (e.g., greater board independence, and more female directors) tend to have more COVID-related disclosures, despite the fact that more COVID-related disclosures suppress a firm's market-based stock performance (e.g. Tobin's Q). Our results suggest that better-governed firms prefer greater transparency, even if it may hurt their market performance in the short run.

Information Aggregation Bias and Samuelson's Dictum

AbstractUnder the assumption of incomplete information, idiosyncratic shocks may not dissipate in the aggregate. An econometrician who incorrectly imposes complete information and applies the law of large numbers may be susceptible to information aggregation bias. Tests of aggregate economic theory will be misspecified even though tests of the same theory at the microlevel deliver the correct inference. A testable implication of information aggregation bias is “Samuelson's Dictum” or the idea that stock prices can simultaneously display “microefficiency” and “macroinefficiency;” an idea accredited to Paul Samuelson. Using firm‐level data from the Center for Research in Security Prices, we present empirical evidence consistent with Samuelson's dictum. Specifically, we conduct two standard tests of the linear present value model of stock prices: a regression of future dividend changes on the dividend‐price ratio and a test for excess volatility. We show that the dividend price ratio forecasts the future growth in dividends much more accurately at the firm level as predicted by the present value model, and that excess volatility can be rejected for most firms. When the same firms are aggregated into equal‐weighted or cap‐weighted portfolios, the estimated coefficients typically deviate from the present value model and “excess” volatility is observed; this is especially true for aggregates (e.g., S&P 500) that are used in most asset pricing studies. To investigate the source of our empirical findings, we propose a theory of aggregation bias based on incomplete information and segmented markets. Traders specializing in individual stocks conflate idiosyncratic and aggregate shocks to dividends. To an econometrician using aggregate data, these assumptions generate a rejection of the present value model even though individual traders are efficiently using their available information.

Dividend change announcements, ROE, and the cost of equity capital

We hypothesize and present strong evidence that dividend increases (decreases) result in a general decrease (increase) in the opportunity cost of equity capital (Ke), measured by the discount rate implicit in analysts' forecasts. Estimates of Ke obtained from analyst forecast data likely capture priced information risk that is not reflected in cost of equity capital estimates customarily obtained from empirical excess returns data. In the presence of a full menu of control variables, our measured changes in the cost of equity capital are shown to provide high explanatory power for the market reaction to dividend change announcements. We also hypothesize and demonstrate that the impact of dividend changes on the cost of equity is conditional on how preannouncement Ke relates to preannouncement return on equity (ROE). Specifically, dividend increases result in a reduction in the cost of equity capital only when currently experienced ROE < Ke. This is consistent with shareholders preferring earnings to be reinvested by managers to earn a higher rate than their opportunity rate. When ROE > Ke, on the other hand, the cost of equity capital actually increases. For dividend decreases, the cost of equity capital increases only when ROE > Ke, consistent with firms currently experiencing positive economic income using dividend cuts to signal anticipated permanent earnings declines. Together with extensive robustness tests, our results indicate that dividend changes significantly affect shareholder value, contrary to the longstanding dividend irrelevance argument.

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

What Drives Shareholders' Reaction To CEO Turnovers, Dividend Changes, and Block Trades? A Theoretical Background

Abstract This study presents a review of theoretical concepts described in the literature that explain how corporate events might be perceived by investors. The theoretical discussion in this paper is related to three corporate events: CEO turnovers, dividend payouts, and block trades. The objective of this analysis is to identify and systemise the theoretical background for the drivers of shareholders' responses to these three corporate decisions. In other words, I will provide answers to the following questions: why is the market reaction sometimes positive and other times negative, and why is it sometimes stronger and other times weaker? Based on the literature review, I will show that each of the analysed corporate events might be perceived by shareholders as either positive or negative signals concerning perspectives and future cash flows. Consequently, corporate events might drive share prices up or down. However, shareholder reaction to one type of the event, such as CEO turnovers, will not always be homogeneous – only positive or negative. The strength of this reaction may also vary. The main reasons for these variations are the effectiveness of corporate governance mechanisms, investors' perceptions of the event, the event's peculiarities, and the company's characteristics, as well as other relevant circumstances and factors.