Dividend Changes Research Articles

Tax preferences, dividends and lobbying for maximum value

Background: The value of equity investments depends to some extent on the tax consequences for investors. When groups of investors have different tax preferences, this can lead to conflicting pressures on firms to either retain earnings or pay dividends. The findings of this study will be of interest to researchers of taxation and corporate governance alike, as they highlight the role that corporate shareholders play in the decisions of the firm. Investors and regulators will also be interested in the findings as they reveal more about the interaction between shareholders with conflicting interests. Lastly, changes in behaviour as a result of changes in tax legislation are of interest to those with fiscal responsibility.Setting: A 2012 dividend tax change in South Africa, which simultaneously altered the tax preferences of individual and corporate investors, provides a unique opportunity to investigate firms’ reaction to their investors’ tax preferences.Aim: This article seeks to determine whether firms respond to changes in their investors’ tax preferences in their decisions to either retain earnings or pay dividends.Method: The article investigates the responses of firms to the 2012 dividend tax change using multivariate regressions.Results: Findings show that firms consider changes in the tax preferences of their investors in setting dividend policies. In addition, it appears that corporates have greater success in lobbying for beneficial dividend changes than individuals.Conclusion: Changes in investors’ tax preferences impact on firms’ dividend policy decisions. These decisions ultimately affect the value of the firm to its investors

Dividend Manipulation at Unlisted REITs

AbstractDividend policy at unlisted firms is confounded by the continuous equity offering—as exists for unlisted REITs. Unlisted firms lack visible share prices, which heightens the sensitivity of investors to dividends paid during the offering. By paying high dividends early, managers of unlisted REITs positively influence the flow of new equity. Dividend manipulation occurs when discretionary yields are exceptionally high and predominantly favorable dividend changes occur during the equity offering, followed by a surge in unfavorable changes after the offering. Evidence of dividend manipulation at unlisted REITs is provided where even discretionary yields are significantly reduced once the offering expires.

Dividends and Subsequent Profitability: An Examination of a Dual Dividend Stock Market

This study examines the association between dual dividend changes and future profitability. A fundamental characteristic of dual dividend payouts is that both components, cash dividends and stock dividends, emit separate dividend signals for subsequent profitability. To analyze dividend signal theories, this study partitions the sample into three sub-samples according to the ratio of cash to stock dividends. Empirical evidence strongly indicates that dual dividend changes are positively associated with future profitability in the balanced dividend subsample. The results of this study are generally robust in terms of accommodating the factors of stock repurchases, investment growth opportunities, and business cycles.

Do Dividend Changes have Informational Content to Signal the Market ? Evidence from the Indian Stock Market

This paper analyzed the signalling effect of stand-alone dividend decisions on the market prices of listed companies in the emerging Indian economy ; 158 events pertaining to 103 companies common to Bombay Stock Exchange (BSE) and National Stock Exchange of India Ltd. (NSE) were selected. GARCH (p q) model for the calculation of abnormal returns during the event window of 61 days for the period of 10 years was applied. The findings are indicative of the absence of signalling effect amidst inefficiency of the market for all levels of changes in stand-alone dividend announcements.

PENGARUH KEBIJAKAN DEVIDEN TERHADAP LABA SATU TAHUN KE DEPAN

Earning growth is one of the company’s goals in accounting report. Dividend payment is assumed to have a link in the change of the profit in the following year. Pecking Order Theory revealed that a change in dividend will give a negative impact towards profit change. However, this statement contradicts to Zhou and Rulland’s research (2006) which showed that dividend payout has a positive impact towards profit change in the following year. This research is in accordance with signaling theory which describes that dividend is a reflection of a good performance from the company, thus, it will invite investors to increase their investment share. With the increase in the investment, the company is expected to expand and increase its profit.The research is conducted in Indonesia towards all emitents in the manufactory sub sector by taking 95 research samples from companies that paid dividend in 2007, 2008,2009, and 2010. The research type is quantitative research with double regression analysis instrument. The dependent variable is the change of profit while the independent variable is dividend payout. Variable controls in this research are ROA, leverage, and size.The result of the research shows that dividend payout does not significantly influence the change of profit even though the number of co-efficient regression is positive. ROA and leverage variables significantly influence the change of profit while Size variable does not significantly influence it. In the maturity and stable level, the company will find it hard to increase the profit even though dividend payment is high.Keywords: Earning growth,Profit, ROA, Leverage and Size.

Modeling Leverage Dynamics and Corporate Financial Policies (Empirical Evidence from Industrial Sector of Pakistan)

In recent years, downfall in industrial sector of Pakistan has become an important issue in the economy of Pakistan. Therefore corporate financial policies of industrial sector are gaining more intention in the financial decision making regarding to the leverage dynamics. In this study we used the data from Chemical, Cement, and Fertilizer sector for the period 2006-2016. These three sectors consist of 42 companies which are listed on Karachi Stock Exchange (KSE). Abnormal return is taken as dependent variable while 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 are used to express the impact of these variables on return. Hence it is concluded that modeling the leverage dynamics and corporate financial policies robust the results and this phenomenon can be implemented in diverse way for each sector of non-financials in Pakistan.

Reaksi Pasar Atas Pengumuman Dividen (Studi Pada Emiten Yang Terdaftar Di Jakarta Islamic Index)

This research aims to see market reaction over the increasing and declining dividend announcement. The objective in this research is to test whether the stock price reacts positively to the increasing dividend announcement and reacts negatively to the declining dividend announcement are shown by the significant abnormal return (AR) value in around the announcement date and by the significant difference of abnormal trading volume activity (ATVA) before and after the announcement. The results indicate that market does not react over increasing as well as decreasing dividend announcement. This indicates that the event of dividend changes announcement are not reacted by market.

The Relationship Between Cumulative Abnormal Returns And Earnings: Evidence From Emerging Markets

This study examines the signaling hypothesis of dividends by testing empirically the market reaction to dividends announcements. Furthermore, this study examines the information content of dividends announcements with respect to future earnings changes for a sample of firms listed at Amman Stock Exchange (ASE) during the period 2005 to 2010. The sample consists of 183 observations and 132 observations for dividend release sample and no-dividend release sample, respectively. The Event Study Methodology (ESM) is applied to examine the market reaction to dividend release announcements. The market model is used to generate the expected returns. Also, the t-test is used to examine the significance of the mean and cumulative abnormal returns. Furthermore, a regression model is used to examine the signaling hypothesis. To test the information content of dividend changes on earnings prospects, we individually incorporate the linear model with CAR to form the model. The findings of the information content of dividends applying the ESM methodology show that there is a significant positive abnormal return on the announcement days. Also, it shows that there is an overreaction straight after the announcement day, then a correcting attempt in the post event and then it goes back to normal, which is consistent with the signaling hypothesis. For the no-dividend release sample, the results show no significant abnormal return on and around the announcement days which is again consistent with the signaling hypothesis. Our results are consistent with AlShattarat et al . (2012) suggestions that there could be value relevance for dividends rather than dividends' change. Also, the findings present a strong relationship between dividends announcements and the profitability mainly in the year of announcements and the subsequent year, whereas this relationship does not exist in the second year of announcements. The findings of this study could have significant policy implications for Jordan's existing corporate governance practices and firms' disclosure environment. The results are specific to Jordan, but they do shed light on the generality of the rival models of dividend policy.

Dynamics of Dividend Payout in Emerging Stock Markets: Evidence from Public Firms at Nairobi Securities Exchange, Kenya

Dividend decisions are central to corporate finance because of its relationship with firm value, finance and investment. Emerging stock markets like the Nairobi Securities Exchange have been hypothesized to exhibit unpredictable dividend behavior by some finance scholars. The thesis is guided by the hypothesis that emerging market firms following dividend pattern different from that of developed stock markets and that determinants of payout exhibit different behavior in different stock exchanges. A mixed design involving panel data from 40 firms over the period 2000 to 2010 and cross section data from finance officers of 40 firms provide evidence of dividend dynamics for quoted companies at the exchange. Panel data estimation techniques along with logistic regression are applied in analysis and testing of hypotheses at 0.05 level based on firm and industry characteristics. Conclusions include; dividends payout by listed firms at the NSE are influenced and predicted mainly by prior dividends (73%) followed by changes in current after tax earnings (3.5%) and lastly business risk to a lesser extent. Secondly, three companies consistently paid significantly higher dividends than their peers in the study period. Thirdly, majority of corporate managers do not smooth dividends when distributing earnings. Forth, Fama and Babiak (1968) dividend model best explains dividend behaviour of NSE firms compared to Lintner (1956) model. Fifth dividend payout in this market is explained by agency cost, signaling and information asymmetry theories. Lastly industry and time effects have no link to dividend decisions of firms in the market. Recommendations include; Shareholders and new investors at NSE should consider prior dividends and earnings changes when making choices about which stock(s) to buy. Dividend payout need to be stabilized by corporate managers to enhance value especially by firms in sectors facing high risk and growth prospects. More so dividend paying firms are preferred by investors to non-paying firms and that changes in dividends elicit excitement among investors compared to keeping dividend unchanged. Finally management of three firms namely Bamburi Cement, Kapchorua Tea and BOC Ltd possess superior talent compared to other firms in their respective industries.

The Cash-Flow Permanence and the Choice between Dividends and Stock Repurchases

Firms can use dividends and/or share repurchases to distribute cash to shareholders. Jagannathan, Stephens, and Weisbach (2000) argue that managers tend to use dividends to pay out permanent cash flows and repurchases to pay out temporary cash flows. This paper examines Korean firms’ decisions on their choices between paying out cash flows in the form of dividends or share repurchases. We focus on the permanence of cash flows. To complete this analysis, we decompose cash flows into a transitory component and a permanent one of each firm, employing the approach of Beveridge and Nelson (1981). We find that higher permanent cash flows increase the probability of a dividend increase, while higher temporary cash flows increase the probability of repurchases. And Korean firms tend to choose both dividend change and repurchases when temporary cash flows increase, rather than to choose only repurchases without dividend change. These empirical results show that Korean firms take into consideration of permanence of cash flows in the choice of their payout methods.

Dividend policy following mergers and acquisitions: US evidence

Purpose The purpose of this paper is to address whether the past dividend policy of target firm impacts dividend policies following US mergers and acquisitions (M&A). Design/methodology/approach The authors use the catering theory as a theoretical approach to test dividend change after a merger-acquisition. For the empirical design, dividend policy is captured using dividend status, payout ratio and dividend yield, and specifications are estimated using Probit and OLS models. Findings The data indicate that dividend policy of the target affects dividend policy of the combined entity in cases of stock-based deals. This result provides support for catering theory, which maintains that managers of acquirers adjust dividend policies following transactions to cater to target shareholders’ preferences. Research limitations/implications Although the tests suggest significant results using dividend status and payout ratio as measures of dividend, the authors do not find a similar effect for dividend yield. Practical implications Financial analysts evaluating merger-acquisition announcements may wish to predict the dividend policy following stock-based deals as they project the likely impact of past dividend policies of target firms. The results are also likely to be useful to investors. Originality/value The paper presents new evidence about dividend policy following M&A. To the authors’ knowledge, this is the first study that examines how an acquirer’s dividend policy is affected by an acquisition.

Asymmetric Information and Signaling Theory: Panel Causality Approach on the Relationship between Dividends and Earnings

It has been long debated how, with what methods, to what extent, and how much should the earnings obtained in companies be distributed so as to maximize the market value of companies. The extent of the dividends any company would distribute to its stakeholders undoubtedly depends on the profitability situation of the relevant period. However, the distributed dividends provide reliable information concerning the future earnings of the company. For this reason, the short- and long-time relationship between dividends and earnings should be evaluated in a bidirectional way. In this study, the relationship between dividends and earnings per share for the period between 1990 and 2014 has been studied using two different panel causality tests and the asymmetric-information-based signal effect has been analyzed for individual companies. As a result of the tests conducted, a weak causality relationship has been detected between changes in dividends and companies’ future earnings. Obtained findings have pointed out that, in most companies, earnings are more effective in identifying future dividends.

New evidence on stock market reaction to dividend announcements in India

We revisit the information content of dividend announcements in India from 2012 to 2014 in a unique market setting which involves the introduction of Company’s Act 2013. We find that announcement of increase in dividend lead to increase in stock prices, while the dividend decrease announcements are associated with decrease in stock prices. Firms that announce no change in dividends, experience insignificant negative returns around the event date. Our results contradict the tax-signaling model, which argues that higher taxes on dividends than capital gains are necessary for dividend announcements to be informative. The abnormal returns increase post the introduction of Company’s Act 2013. The results of the firm-specific panel regressions indicate that the information content of dividends has a non-linear relation with the founder ownership consistent with the monitoring and rent extraction hypotheses.

Corporate Bond Price Reactions to Dividend Changes

Employing an event study approach, we examine 5,574 bond return reactions to unexpected quarterly dividend change announcements in the U.S. corporate bond market over the period 2002–2014. Overall, we report a significant bond price reaction in the same direction as dividend changes, which supports the hypothesis that dividend changes signal future firm performance. We also find that the bond return reaction is more pronounced if the dividends are reduced than if they are increased. We document a wealth transfer effect when riskier bonds are issued by firms with a low cash ratio and are approaching maturity. These results still hold after we control for the financial crisis and dividend covenants and when we use alternative variables to capture the dividend surprise.

Pengaruh Perubahan Dividen Terhadap Profitabilitas Perusahaan Pada Masa Yang Aakan Datang (Future Profitability)

<em>The research investigates the incremental information content of dividend changes about future profitability. We regress three of measurement of earnings (earnings level, earnings changes and abnormal earnings) to dividend changes and a number of control variables. By using 87 samples (420 firm years) of firm at Jakarta Stock Exchange over 1997-2003, We find that dividend changes provide information about the earnings insubsequent years, incremental to market and accounting data. The paper also documents that dividend changes are positively related to earnings changes for merely four year ahead. In detail examining, We find that dividend increase convey must new information about earnings changes and abnormal earnings for three year ahead than dividend decrease.</em>

Information content of unexpected dividends under a semi-mandatory dividend policy: An empirical study of China

We examine the information content of unexpected dividend changes under China’s unique semi-mandatory dividend policy, which requires firms to pay a minimum amount of cash dividends before they can undertake seasoned equity offerings (SEO). The cumulative abnormal returns (CARs) are significantly positive in response to unexpected dividend increase for non-SEO firms, but they are not significantly different from zero for SEO firms. For non-SEO firms, there is a significant positive relation between future earnings and unexpected dividend increases, but the relation is not significant for SEO firms. However, when considering additional refinancing costs for SEO firms caused by the mandatory dividend policy, higher dividend payments are associated with lower future earnings. Overall, our findings are consistent with both the dividend signaling theory and the negative effects of SEOs on a firm’s value.

Are Friday announcements special? Overcoming selection bias

We report reduced market response to Friday announcements of dividend changes, seasoned equity offerings, share repurchases, earnings, and mergers, which is seemingly consistent with the notion of investor inattention on Fridays. However, we show that these findings are an outcome of selection bias. Firms that make announcements on Fridays experience reduced market response on any weekday and have common unobserved characteristics across announcement types. After correcting for selection bias, there is no evidence that investors pay less attention to announcements made on Fridays. The method introduced here is applicable to other studies in which an exogenous factor influencing firm performance can actually be associated with firm characteristics.

The wealth effects of dividend announcements on bondholders: New evidence from the over-the-counter market

This paper investigates the announcement effect of dividend changes on bondholders using bond transaction data from the over-the-counter market. Abnormal bond returns over a three-day event window are positive surrounding dividend increase announcements and negative surrounding dividend omission announcements. The bond market reaction to the dividend increases is more positive for larger dividend increases, speculative grade bonds and the period from 2008 to 2010. Most of the results are consistent with the signaling hypothesis. Additionally, bond market reactions to dividend decreases and initiations are insignificant. The stock market reacts negatively to dividend decreases and positively to dividend initiations. The bond and stock market reactions to dividend decreases and initiations suggest that there is also a wealth transfer effect.

The Wealth Effects of Dividend Announcements on Bondholders: New Evidence from the Over-the-Counter Market

Evidence is scarce and inconclusive on the announcement effect of dividend changes on bondholders due to poor quality and availability of bond price data. This paper fills this gap using daily bond transaction data from the over-the-counter market. Most of my results are more consistent with the signaling hypothesis than the wealth transfer hypothesis. I find that abnormal bond returns over a three-day event window surrounding an increased (omitted) dividend announcement are positive (negative) and statistically significant. Consistent with the signaling hypothesis, the bond market reaction to the dividend increases announcement is more positive for larger percentage dividend increases, speculative grade bonds, and the period from 2008 to 2010. While most of my results are consistent with the signaling hypothesis, my findings of insignificant (insignificant) bond market price reaction and significantly negative (positive) stock market price reaction to dividend decreases (initiations) announcements suggest that there is also a wealth transfer effect.

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

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