Dividend Changes Research Articles

Determining business value according to FCFE

The large number of joint stock companies causes that investors strive for better awareness and information in the stock area. The objective of the contribution is to apply the method of discounted FCFE in the valuation of a specific company and to determine the parameters for the model application in practice. The data for the analysis are obtained from the database of Kofola ČeskoSlovensko a.s. The data are taken from the published annual reports for the years 2018 and 2019. First, a financial plan for a period of stability was created. Subsequently, the discount value of the company was calculated using the FCFE model. Finally, the calculation of the company value in the continuation phase was calculated. To achieve the research goal, the individual FCFE need to be discounted by the value of equity using the CAMP model. In conclusion, it can be assumed that the discount rate will remain stable and the prediction of the growth rate will not change. If there are no fundamental changes in the company e.g. in terms of dividend payment, investment activities, or changes in the working capital, it can be assumed that the value of the company should be stabilized until 2021.

The impact of the COVID-19 pandemic on dividends

This paper examines the impact of the COVID-19 pandemic on the dividend payouts of publicly traded firms in the U.S. Out of nearly 1,400 dividend paying firms, 213 cut dividends and 93 omitted dividends entirely in the second quarter of 2020. This proportion of cuts and omissions is three to five times higher than any other quarter since 2015. The 2008 financial crisis was characterized by a high proportion of financial firms cutting dividends without much change in dividends for non-financials. Conversely, we find evidence of increased dividend cuts across all industries. The most common industry grouping, industrials, experienced one out of every six firms cutting dividends. Regression results indicate that net income and debt are determinants of firms cutting dividends in all periods, but the economic significance is much greater during the pandemic.

Strategic reactions to information content of dividend change: applying BCG growth share matrix when signalling hypothesis identified

The signaling hypothesis has been vastly under investigation for many years. There are two attitudes towards this phenomenon; some believe that firms increase (decrease) their dividend to signal about the future increases in earnings due to asymmetric information that managers have. Adversely, others believe that firms usually increase their dividends when they do not have further lucrative projects with positive net present values. Although there is a lot of empirical testing about this hypothesis that has been placed, there is no investigation about agency costs and cheating potential signaling hypothesis can provide for managers to cheat shareowners and market if it happens in the stock market. Through this article, we will test the signaling hypothesis for the firms listed in Tehran Stock Exchange, a rather volatile emerging market. We concluded that while dividend increases have no significant information content about future earnings, dividend decreases have meaningful information content about decreasing earning in the future. We use different scenarios that managers can react if the signaling hypothesis occurs and analyze the agency cost these scenarios bear on shareowners.

Corporate Payout Policy and Credit Risk: Evidence from Credit Default Swap Markets

We examine whether and how payout policy affects credit risk using evidence from the credit default swap (CDS) market. CDS spreads increase substantially in response to announcements of dividend cuts, especially during recessions and among firms experiencing financial distress. CDS spreads also react more strongly to permanent and less anticipated dividend cuts. The size of the CDS reaction is more pronounced for financial firms, which are inherently more opaque. In contrast, CDS spreads react weakly to dividend raises and share repurchases. The results show that the information effect of dividend changes dominates the wealth-transfer effect. This paper was accepted by Kay Giesecke, finance.

Are dividend changes exploited in the equity market?

This paper investigates whether the equity market anticipates dividend changes that have large value effects in the days leading to the announcements. In particular, I partition dividend changes into those with large and small value effects based on dividend and firm characteristics and study the abnormal returns preceding the changes by the two groups. T-tests are used to test the difference in mean abnormal returns preceding dividend changes by the two groups, and regression techniques are used to test whether this difference is equal to the corresponding difference for firms that maintain dividends. The results show that the abnormal returns preceding dividend changes that have large value effects are not different from those preceding dividend changes that have minimal value effects or, if there is a difference, it is statistically similar to the corresponding difference preceding unchanged dividends. Thus, it does not appear that the equity market exploits the price effect of dividend changes that have large value effects in the days leading to the events. This contrasts evidence that shows that the equity market anticipates corporate events that have large price effects in the days proximal to the events.

Are Emerging Markets Efficient? Evidence from Informational Content of Dividend Changes in Polish Stock Market

Purpose: The objective of this paper is to present the dividend signaling hypothesis, in particular, an empirical analysis of the relationship between the current changes in the level of a dividend paid (t0) and the future profitability of the companies. Design/Methodology/Approach: The dividend signaling hypothesis is empirically tested using the dynamic causality analysis based on the regression approach monitoring for expected earnings changes and past returns with a set of linear and non-linear controls. The conducted analyses comprised the domestic companies quoted on the Warsaw Stock Exchange, which paid dividends in 2001-2016. Findings: The empirical results confirm that in the audited period, dividend decisions bring some information about the current situation (t = 0) and future (t = 1, t = 2) of the analyzed companies. It is also worth noting that among the analyzed indicators, the gross profit ratio (PBT) referred either to the market value or the book value of equity was most often in the statistically significant analyzes. In general, our results confirm the validity of the signaling hypothesis in the case of continuation-growth and initiation of payments in the Polish capital market as in the developed market. Practical Implications: We can say that investors, based on signals coming out of dividends advertisements, may conclude the future-income potential of a given company. Originality/value: As mentioned, the gross profit ratio (PBT) referred either to the market value or the book value of equity was most often in the statistically significant analyses. Thus, it seems that, contrary to the adopted assumptions in the literature, gross profit (PBT) in dividend signaling is more important than net profit (E).

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.

Predicting stock dividend using neural network and decision tree and comparing them with voting technique

Data mining is one of the developing sciences and it is very suitable for analyzing database. Data mining is used in many sciences, such as business intelligence, shopping basket analysis, and medicine. The main algorithms of data mining are 4 categories that 2 main categories are feature ranking and classification algorithms. In this study, we propose a method for predicting the dividend of market price using data mining technique. A new method has been provided for classifying the data, and then the accuracy of each method has been achieved by implementing the above approach on a database with 371 companies in different industries and obtaining the precision of each model according to the inputs. We used stock data to apply this research, and based on the approach, we predicted the rate of change in the companies' dividends in 2015 according to the data of companies. The results indicated the high accuracy and high speed of the proposed approach.

The dividend signaling hypothesis and the corporate life cycle

PurposeThis paper aims to examine the relationship between the dividend signaling hypothesis and a firm's life cycle.Design/methodology/approachThe authors use Dickinson's (2011) methodology to develop a proxy for the firm's stages in its life cycle and to examine the relationship between dividends and future earnings following a nonlinear setting.FindingsUsing a sample of US firms during the 2000–2014 period, the authors find that the signaling hypothesis can be dependent on firm-specific characteristics, such as life cycle stages. The authors report that the relationship between dividend changes and subsequent earnings changes is different for different life stages. They also find that changes in the amount of the dividend provide some information about future earnings, especially during the early (introductory and growth) stages. These results are consistent with the use of earnings or return on assets as the dependent variables in models of earnings expectations.Originality/valueThe authors believe that this is the first time that the dividend signaling hypothesis has been linked to the life cycle of the firm.

Signaling safety

Contrary to signaling models’ central predictions, changes in the level of cash flows do not empirically follow changes in dividends. We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the following: (1) both dividend changes and repurchase announcements signal changes in cash-flow volatility (in opposite directions); (2) larger cash-flow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-flow news, nor total stock return volatility change following dividend changes. We conclude cash-flow news—and not discount-rate news—drive payout policy, and payout policy conveys information about future cash-flow volatility.

The abnormal return associated with consecutive dividend increases

Several studies conclude that dividend changes that are seemingly predictable on a calendar basis attract abnormal returns. We study the abnormal returns associated with consecutive dividend increases to understand this puzzle. We use regression techniques to study the relation between the number of consecutive dividend increases and the abnormal return associated with the events. Further, we study whether this relation is sensitive to firm characteristics by partitioning the regressions by the characteristics that influence the abnormal return. Our results show that the abnormal returns associated with consecutive dividend increases decline at a diminishing rate and they do not disappear, consistent with the puzzle. In addition, the decline in returns is slowest among firms that are unprofitable, small, or have high payouts. These findings suggest that the abnormal returns persist because firms that are not expected to continue a dividend-increase streak based on their characteristics do so, surprising the market and perpetuating the abnormal return.

Operating Cash Flow and Dividend Changes as a Management Tool for Planning and Making Decision

The main objective of this study was to examine whether operating cash flows have incremental information beyond operating net income in explaining dividend changes for a sample of Jordanian industrial firms listed on the Amman Stock Exchange (ASE) during the period 2010-2016 Arguments for operating cash flow information suggest that it is better than accrual net income in reflecting the firm performance and in measuring the firm liquidity. Both performance and liquidity are viewed as significant factors influencing a firm’s dividend policy. To examine this, operating cash flow, operating net income and lagged dividends were incorporated in a regression model. The results of this model indicated that the only significant variables explaining dividend changes were operating net income and lagged dividends with positive and negative coefficients, respectively. An attempt was also made to address the problem of nonlinearity in the relationship between cash flow and dividend changes. The sample of the industrial firms were divided into two groups (high growth and low growth firms) based on market to book value ratio. The results of the two regression models provided evidence consistent with the superiority of accrual operating net income over operating cash flow in explaining dividend changes. The results of this study suggest that Jordanian industrial firms base their dividend policies on accrual net income rather than on cash flows. One possible consequence of this suggestion is that cash dividends are not internally financed and as a result, this would deteriorate the liquidity and solvency position of a firm.

Corporate tax, financial leverage, and portfolio risk

We examine the theoretical implications of corporate income tax for a risky portfolio in a aggregate-endowment economy. In this model, corporate income tax affects the portfolio risk associated with the rebalancing motive during market clearance. An asset is defined as a portfolio of stocks and bonds whose portfolio weights are similar to financial leverage. Corporate tax can decrease after-tax consumption from dividends (increase leverage) and increase the tax shield that increases dividends (decrease leverage). Changes in dividends are responsible for the correlation between expected dividend growth and consumption growth and, thus, affect stock pricing and returns. Overall, the model is characterized by tax-induced portfolio risk associated with financial leverage.

Dividend policy in India: reconciling theory and evidence

PurposeThe purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.Design/methodology/approachThe authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.FindingsThe results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.Originality/valueIt provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.

Evaluating the Effectiveness of the Bird-in-Hand-Dividends Policy in the Stability of Jordanian Listed Banks

The present paper is empirically scrutinized the long and short-run causalities, which are running from the bird-in-hand dividends policy towards investors' preferences as proxied by banks’ stability. Through analyzing a quarterly data set covering the period Q1/1996-Q4/2018; results from the ADF test proved that the series variables became stationary only after including the first difference. However, although the Johansen test showed long-run integrations among variables; findings from the single equation of the error correction model asserted that there are no long-run causalities running from dividends’ policy towards investors’ preferences as captured by the Z-Score index “ZSI”, bankometer model or market capitalization. By contrast, results from the Waldtest proved that except for earnings per share and retained ratio; the solvency of banks is found to be significantly responding to the change in dividends payout ratio. However, since there are short-run correlations among dividends’ stability, investors’ preferences and banking stability, the study concluded that the ZSI is significantly related to investors’ attitudes towards banks' decisions regarding dividends’ payments.

Abnormal Returns, Corporate Financial Policies and the Dynamics of Leverage: Empirical Evidence from Non-Financial Sector of Pakistan

The aim of this study is to evaluate impact of corporate financial policies and the dynamics of leverage on financial performance of non-financial sector in Pakistan. In this study we used the data from Fertilizer, Chemical and Cement sector for the period 2008-2017. Abnormal return has been taken as dependent variable and Change in cash to lagged market values, Change in EBIT to lagged market values, Change in dividend to lagged market value, Net Financing to lagged market value, Lagged cash values to lagged market values, Lagged cash values to lagged market values crossed by change in cash to lagged market value, Change in total assets net of cash to lagged market values, Change in interest to lagged market values, Operating leverage, Financial leverage, Total leverage, Leverage ratio, Leverage ratio to change in cash crossed by lagged market values and WACC are taken as explanatory variables. OLS, Fixed effect and Random effect models has been used to express the impact of these variables on return. Hence it is concluded that leverage dynamics are significant contributors in designing the corporate financial policies. Corporate financial policies have significant impact on the financial performance of the non-financial sector of Pakistan.

Corporate social responsibility and cash holding: evidence from trucking firms

ABSTRACT This study analyses the influence of corporate social responsibility (CSR) on the corporate cash management of trucking firms. The fixed-effects model of the panel data analysis is applied from 2007 to 2017. Capital expenditures, dividend payments, and retained earnings negatively influence cash holdings, whereas cash flow, market-to-book ratio, net working capital, and share repurchase for all CSR categories positively influence cash holdings. However, the changes in market leverage, dividends, book-to-market ratio, and firm size negatively and significantly influence excess stock returns. In summary, social and environmental participations positively influence cash holdings and excess stock returns, respectively.

Dividend Signaling Hypothesis, Semi-strong form of Hypothesis and Market Capitalization Anomaly in Indian Stock Market

The dividend signaling hypothesis means that dividend change announcements send signals to the market about its prospects. Market capitalization anomaly or size effect means small-cap stocks variances and returns are different than the large-cap stocks. The sample was tested for dividend change announcement, and the sample was divided into large, medium, and small sample sizes based on the market capitalization of the stocks to test the size effect. Event methodology market model used to calculate the abnormal returns on the dividend announcement day. We found that dividends send signals to the market, and the market reacts positively to the dividend change announcements on event day (Aharony and Swary 1980, Litzenberger and Ramaswamy 1982, Dhillon and Johnson 1994, Below and Johnson 1996), but results may vary with the size of the company. Small-cap companies' variances are higher than the large-cap and mid-cap companies, and also small-cap variances are not equal to other variances results similar to Wong (1989), Bandara and Samarakoon (2002), Sehgal and Tripathi (2006), and Switzer (2010). Finally, we concluded that the dividend signaling hypothesis and market capitalization or size effect anomaly exist in the Indian stock market

Speed of Adjustment in Dividend Payout Decisions: A Comparative Analysis of Developed and Developing Countries

The analysis of dividends payout policy has been apopular subject of research since the middle of the 20thcentury. Despite a huge number of investigations thereis no consensus opinion as to the best practices in thefield. Over the years, different hypotheses have been putforward proposing various methodologies. Some workingpapers underline share repurchase as the best approachtowards payout policy [1]. On the other hand, there aresome investigations which emphasize the opposite pointof view: that dividends are more preferable [2]. Anotherexplanation states that there is no qualifiable difference intypes of payout policy [3]. However, the majority of recentworking papers argue that the best approach is to combine share repurchases and dividends [4].Academic investigations into payout policy began withLintner’s working paper [5]. This research includes notonly financial modeling and results based on regression analysis, but also presents information concerningthe preferences of top-management in payout policydecisions. As a result of interviews with top managers,Lintner identified the existence of a target value fordividend payouts. So, managers tried to maintain theshare of net income attributed to dividends instead ofthe value of dividends themselves. Moreover, Lintnerfound that there is a pertinent speed of adjustment1individend policy. This phenomenon is described by thefact that in case of significant net income changes, firmsdo not pay all the dividends targeted at a specific level ofnet income. Companies only adjust the level of dividendsin the direction of the changes. Lintner also providedan explanation of this fact. It was noted that companies’top management was sure that significant changes in dividends can be negatively appraised by the stock market,especially in case of a fall in the value of dividends. So,managers understate the changes in dividends to betterassure that next year’s profit can cover the new dividends. However, next year’s net income also incurs somefluctuations, so it it is necessary to make some adjustments to dividends. As a result the process of dividendadjustment becomes permanent.The investigation of Brav et al. [6] also was devoted to theanalysis of payout policy, and included interviews with alarge number of CFOs. This research confirms the mainresults of Lintner’s work, but with some limitations. Thestudy carefully analyzed the existence of any target level inpayout decisions. The authors found that only 6% of CFOsdo not target dividends at all. However, in contrast toLintner’s work the majority of CFOs (approximately 40%)answer that their key target is dividends per share. Only28% try to target a dividends payout, and 27% of managers target dividends per share growth. This investigationshows that nowadays, targeting dividends per share is amore common practice than targeting payouts. Despite the fact that these results display some differences fromLintner’s one, they do not reject the hypothesis aboutexistence of dividend smoothing.

Dividends and earnings quality: Evidence from India

The objective of this study is to determine the association between dividend payment and earnings quality. Four features of dividends have been examined in the study–dividend paying status, size of dividends, changes in dividends and dividend persistence. The sample consists of 107 companies listed on S&P BSE200 and, for analysis, 12 years, that is, 2004 to 2015, are considered. Multiple regression analysis is used for analysis. It is evident that dividends convey information about a firm's earning quality. Payment of dividends, changes in dividends and dividend persistence communicate information about quality of earnings, but size of dividend does not have a significant relation with earnings quality.