Dividend Hypothesis Research Articles

Impacts of Dividend Announcement on Stock Price: An Empirical Study of the Vietnam Stock Market

The Vietnam stock market is a new market in which dividend taxes are higher than capital gains taxes, Vietnamese firms have a high state-ownership, a majority of dividends are paid by cash and there is significant inconsistency in dividend payouts. This paper investigates the effect of dividend increase announcements on stock price reactions. A total of 198 announcements for 101 companies listed on the HOSE market was investigated, the results indicated that announcements of dividend increase do not cause reactions in security prices. The obtained results support Black’s tax-based dividend signaling hypothesis about the condition for dividend announcements becoming market information when dividend taxes are higher than capital gains taxes. These findings of this study are also in line with other previous studies.

Global Warming and Technical Change: Multiple Steady-States and Policy Options

In this paper we develop an economic growth model that includes anthropogenic climate change. We include a publicly funded research sector that creates new technologies and simultaneously expands the productivities of existing technologies. The environment is affected by R&D activities both negatively, through the increase of output from productivity growth, as well as positively as new technologies are less harmful for the environment. We find that there may exist two different steady-states of the economy, depending on the amount of research spending: one with less new technologies being developed and the other with more technologies. Thus, a lock-in effect may arise that, however, can be overcome by raising R&D spending sufficiently such that the steady-state becomes unique. We derive the combinations of fiscal policy instruments for which that can be achieved and we study the implications for the economy and for the environment. In particular, the double dividend hypothesis may hold only under some specific conditions.

Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review

Computable general equilibrium (CGE) modelling is a flexible and open way to model the economic systems that allow practitioners to assess the impacts of different policies or external shocks over an economic system. There is some empirical literature dedicated to test the double dividend hypothesis of an environmental tax reform using CGE models. This hypothesis claims that is possible to obtain an improvement of both environmental and economic conditions by imposing an environmental tax and recycling revenues obtained to reduce other pre-existing taxes. This research provides a comprehensive review of this literature including a statistical and a meta-regression analysis. 69 different simulations from 40 studies have been analyzed. 55% of simulations have achieved a double dividend, concluding that although the environmental dividend is almost always achieved, the economic dividend still remains an ambiguous question that needs further research.

Environmental Tax Policy in Romania in the Context of the EU: Double Dividend Theory

In the last decade, environment protection gained much more significance in designing the economic policies in the European Union (EU) countries. There are many economic and policy differences between the European countries, despite of the harmonization process inside the EU area. The path of implementation of the environmental tax reforms in the EU countries differs greatly from one country to another and the effects of such taxation in the economic and environmental areas are manifold. The authors of this paper have agreed to undertake the task of testing the double dividend hypothesis of the environmental taxation in Romania (an energy-intensive country) versus the EU area as a whole, using Vector Error Correction Model (VECM) techniques and Ordinary Least Squares (OLS) estimations. Our findings show that this hypothesis is validated neither in Romania (in the economic growth area) nor in the EU area as a whole (in the unemployment area). Therefore, Romania cannot increase the level of the environmental tax for supporting economic growth, but it can grant environmental subsidies for decreasing the emissions and supporting the economic growth. This could be achieved by expanding the tax labor base and by collecting higher budgetary revenues to sustain such environmental subsidies. As far as the EU area is concerned, it is a necessary measure to continue the descending trend for the labor taxation to achieve the goal of improving the employment rate.

Market reactions to dividends announcements and payouts. Empirical evidence from the Warsaw Stock Exchange

The main goal of this paper is the empirical examination of the Polish stock market reactions to dividend announcements and dividend payouts made by the companies listed on the Warsaw Stock Exchange (WSE). The research sample comprises 56 companies (WIG index constituents) that announced dividend payments and completed the payout during 2013. In the analysis, event study methodology is employed including either calculating abnormal returns and cumulative abnormal returns around the event day or testing their statistical significance using parametric and nonparametric tests. The average cross-sectional abnormal return calculated for the entire sample is found to be significant on the dividend announcement day (t = 0, 0.86%) and on one day after (t = 1, 0.59%) at the 1% and 10% significance levels, respectively. The outcomes of the analysis conducted within the three distinguished subsamples are rather more diverse. In the subgroup of the first announced dividends (or dividends announced after a minimum one-year break), the significant average abnormal return is found on day t = 1 (0.90%, 5% significance level), whereas in the case of the dividend decreases subsample, the significant average abnormal returns (at the 10% significance level) occur on days t = −4 (-1.44%) and t = 2 (-1.15%). The average abnormal return calculated within the subsample of dividend increases turns out to be positive and significant on day t = 1 (1.03%, 10% significance level). The results obtained for the average cumulative abnormal returns corroborate the findings reached for the average cross-sectional abnormal returns in the case of the first dividend and dividend increase subsamples. However, the average cross-sectional abnormal returns calculated within the eleven-day-long event window around the dividend payment day turn out to be statistically insignificant. The obtained results provide evidence that the Polish stock market reaction to dividend announcements is positive and immediate. However, the market does not significantly react to dividend payouts, which may lead to the conclusion that the WSE directly incorporates news on dividends into stock prices. Moreover, the reaction of the market for dividend announcements is consistent with the sign of the dividend change: dividend-increase (-decrease) announcements are interpreted as a positive (negative) signal by the investors. Such results support both the informational content of the dividend hypothesis and the dividend signaling hypothesis. Considering that the observed abnormal market behavior disappears within two days at most after the announcement date, the results of the study can be useful for financial practitioners only with regard to short-term investment decisions.

A classroom game on a negative externality correcting tax: Revenue return, regressivity, and the double dividend

ABSTRACTThe concept of negative externality is central to the teaching of environmental economics, but corrective taxes are almost always regressive. How exactly might governments return externality-correcting tax revenue to overcome regressivity and not alter marginal incentives? In addition, there is a desire to achieve a double dividend in the use of externality-correcting taxes, that is, to use the revenue to offset existing distortionary taxes, such as those on labor that produce a dead weight loss. In this article, the authors explain a classroom game that was developed for students to understand the theory of externalities, taxation dead weight loss, and regressivity. Then, the problem helps students explore the actual design of a policy that satisfies the double dividend hypothesis and corrects for regressivity.

Dividend taxation and household dividend portfolio decisions: evidence from the U.S. Jobs and Growth Tax Relief Reconciliation Act of 2003

ABSTRACTThis study examines the dividend clientele hypothesis by focusing on the preferential tax treatment of qualified dividends provided by the 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) in the United States. Using the Public Use Tax File data, the author finds that the ratios of dividends to long-term capital gains before the 2003 tax act significantly declined with household tax rate differentials between dividends and long-term capital gains, but such a negative tax effect on the ratios disappears afterwards. This seemingly tax-inefficient composition of dividends and long-term capital gains after the tax act arises from households’ ability to reduce their tax burdens on stocks by exploiting the new preferential tax treatments on qualified dividends under JGTRRA. That is, households in the upper tax bracket hold significantly greater shares of qualified dividends relative to ordinary dividends after the tax act.

Validity of double dividend hypothesis in EU-15 countries

The increases in climate change, biological diversity loss, ecosystem degradation, effects of chemical pollution on the human health, scarcity of the sources, energy and water security have been experienced in the world in recent years together with globalization and the sharp increases in the mass production. In this regard, especially developed countries have begun to implement the policies such as environmental tax reforms to overcome these problems. This study examines the impact of environmental tax reforms on both environment and employment in EU-15 countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, United Kingdom) during the period 1995-2012 by using panel cointegration and Panel FMOLS tests. We found that the double dividend hypothesis was valid in EU-15 countries.Keywords: double dividend hypothesis, environmental tax reform, panel data analysis

India’s Demographic Dividend: A Sceptical Look

This article critically examines the assumptions behind the demographic dividend hypothesis and tries to assess to what extent India is in a position to tap the potential demographic dividend. It argues that the assumptions underlying the demographic dividend hypothesis are weak. The benefits flowing from an increasing proportion of working-age population are not an irrefutable law but depend upon the empirical situation that may differ from country to country. In the conditions prevailing in India, the high optimism about India’s ability to reap the demographic dividend found among the scholars and the official circles seems to be misplaced. The quality of Indian labour force leaves much to be desired in terms of its education, skill base and health status.

Water taxation and the double dividend hypothesis

Abstract The double dividend hypothesis contends that tax policies which are aimed at protecting the environment can potentially yield other benefits for the economy. However, empirical evidence of the potential impacts of environmental taxation in developing countries is still limited. This may be partly due to the limited use of environmental tax policies in economic and environmental management in many of these countries. This paper seeks to contribute to the literature by exploring the impact of a water tax in a developing country context, with Uganda as a case study. Policy makers in Uganda are exploring ways of raising revenue by taxing environmental goods such as water. Whereas their primary focus is to raise revenue, this study is aimed at demonstrating how taxes on environmental goods can potentially yield other benefits beyond addressing a country׳s fiscal needs. This study employs a computable general equilibrium model to shed light on the impact of a water tax policy when a tax is accompanied by a plough-back scheme of the same magnitude. We seek to establish whether a water tax policy that is accompanied by a revenue plough-back scheme can induce more growth, employment and industry output. Whatever the degree of regressivity resulting from the tax, it is possible to design a policy that benefits the economy. The policy was also checked for sustainability using a long-run water demand scenario. The results show that water demand remains more or less on the same trajectory and in fact, a higher level of dividends is realized.

Double dividend hypothesis: Can it be validated by carbon taxation swap with payroll taxes?

This paper is concerned with the proficiency assessment of the environmental tax reform to tackle the pollution and simultaneously decrease the tax burden of pre-existent labor taxation. In comparison with mainstream literature, we focus exclusively on the reduction of the tax distortions that affect labor demand, using the revenues generated by environmental levies. Our starting point is the double dividend hypothesis with respect to the environmental taxation. The main objective of this paper is to validate the second dividend hypothesis, hence testing the carbon taxation ability to reduce harmful effects of taxes on inputs such as labor. Following the trajectory of the double dividend hypothesis, the paper examines the potential of carbon taxation enactment accompanied by the payroll tax cuts in order to lower the efficiency costs of these pre-existent distortionary taxes. The feasibility of tax swap mechanism between environmental and payroll taxation is verified through estimating and comparing their efficiency costs. The results obtained from empirical analysis confirm that there is a high potential of swapping these taxes and implementing offsetting measures, where the efficiency costs of payroll taxation are considerably larger than of environmental taxation. Hence, we conclude that there is “enough room” for this tax swap mechanism to take place which would have a two-folded outcome – environment protection improvement and decreasing the efficiency costs of the fiscal system. Given the fact that the efficiency costs of environmental taxes are considerably lower (both in absolute and percentage values), than payroll taxation in the EU, it is possible to apply payroll tax cuts and consequently increase the ratio of environmental taxation. DOI: http://dx.doi.org/10.5755/j01.ee.26.1.8399

The Impact of Dividend Omission Announcement on Market Price of Manufacturing Companies: A Study on Dhaka Stock Exchange (DSE)

The dividend policy is one of the most debated topics in the finance literature. According to the dividend signaling hypothesis, dividend change announcements trigger share returns because they convey information about firm's future prospect. This paper focuses on the empirical analysis of the dividend signaling hypothesis and investigates the announcement effect of dividend changes. The study aims to examine the stock return behavior around the dividend announcement in Dhaka Stock Exchange. The event study methodology is used for this study. The abnormal return and cumulative abnormal return are calculated with market adjusted model. The event window is 30 days. The abnormal return and cumulative abnormal return are evaluated for significance using t-test. The findings of the study reveal that the reaction of stock prices to dividend omission announcement is statistically significant. The evidence tends to support the dividend signaling hypothesis that the bad news message affects the market negatively.

Dividend announcement on share prices in a bull and a bear market phase

The information content of dividend hypothesis has been a controversial debate for a number of decades. This research therefore examines the validity of information content of dividend hypothesis and the reaction of share prices to dividend change announcements that contradict the market phase. That is, observing the reaction of the market to the announcements of dividend decrease (increase) when the market is in a bull (bear) market phase. This is because a bull market is generally characterized by persistent increase in share prices, higher financial wellbeing and strong investor interest. While the bear market on the other hand, is seen as the opposite of the bull market cycle. Using the OLS method of regression and the market model, it was observed that investors have a higher expectation with respect to their investments (in terms of dividends) when the market is in a bull phase and vice-versa in the case of the bear market. The results of this research give a strong backing for the information content of dividend hypothesis as it was discovered that dividend change announcements are positively related to share prices. That is, investors earn abnormal returns around dividend change announcement day especially those that contradict the market phase. The findings of this study also show that investors have similar investment behaviour across different financial markets even in a contradicting bull and bear market phase. Key words: Dividend announcement, share prices, bull and bear market.

Dividend Policy in Indonesia: A Life-Cycle Explanation

This study examines dividend life-cycle hypothesis and propensity to pay dividends of non-financial firms in Indonesia Stock Exchange (IDX) from 1995-2011 in light of a recent notion in IDX to regulate dividend payment. Using several proxies of life-cycle, the results consistently show that Indonesian listed firms follow dividend life-cycle hypothesis. The result also shows that firms’ dividend propensity to pay in IDX is declining over time, and it becomes much more concentrated throughout the observation period. As there has been a view in IDX that regulating dividend payment is necessary, this finding not only provides relatively new empirical evidence of dividend policy in Indonesia, but it also has potential policy contribution. Our results recommend that the regulation take into account the firm life cycle. Firms should only be required to pay dividends when they reach a certain stage and/or meet some characteristics, and action should only be taken towards those firms who do not pay dividends although they should be able to, according to their stage or characteristics.

Double Dividend Hypothesis: Can it Occur when Tackling Carbon Emissions?

The paper focuses on the double dividend hypothesis occurrence in case of carbon taxation enactment. Our assessment questions the conditional occurrence of the hypothesis, where environment improvement and the reduction of tax distortions depend not only on the design of carbon taxes but also on the complementary measures implemented to enhance their efficiency. This paper takes into consideration previous proposals to reduce labor taxation in order to strengthen double dividend hypothesis and aims to point out the risks of such measures, for they could endanger the process of pollution abatement. Due to this fact, the paper proposes another set of alternative measures to boost carbon taxation efficiency.

Economic implications of reducing carbon emissions from energy use and industrial processes in Brazil

This study assesses the economy-wide impacts of cutting CO2 emissions on the Brazilian economy. It finds that in 2040, the business-as-usual CO2 emissions from energy use and industrial processes would be almost three times as high as those in 2010 and would account for more than half of total national CO2 emissions. The current policy aims to reduce deforestation by 70 percent by 2017 and lower emissions intensity of the overall economy by 36–39 percent by 2020. If the policy were implemented as planned and continued to 2040, there would be no need to cut CO2 emissions from energy use and industrial processes until 2035, as emissions reduction through controlling deforestation would be enough to meet the voluntary carbon mitigation target of Brazil. The study also finds that using the carbon tax revenue to subsidize wind power can effectively increase the country's wind power output if that is the policy priority. Further, it finds evidence supporting the double dividend hypothesis, i.e., using revenue from a hypothetical carbon tax to finance a cut in labor income tax can significantly lower the GDP impacts of the carbon tax.

Revisiting Dividend Growth Predictability via Dividend Yield

One of the main theoretical implications of the present value approach on firm valuation is the hypothesis that dividend yield has a predictive power on future dividend growth. The relevant literature, however, was not able to provide evidence that clearly supports this hypothesis. In this paper we cope with the two main reasons that raise the econometric complexity on testing the dividend growth predictability hypothesis, namely, the seasonality effects that appear when higher frequency data are used, and the effect of price volatility on the computation of dividend yield. Specifically, an application of a the Mixed Data Sampling (MiDaS) technique allows us to use monthly dividend data in order to test the hypothesis that dividend yield explains the future annual dividend growth. In order to cancel out the effects of price variation on dividend yield we use a smoothing technique, and we identify the component of the smoothed dividend yield that offers predictive power. Empirical evidence from US, UK, Canada, Germany, France and Japan, strongly supports the dividend growth predictability hypothesis.

From shadow to green: Linking environmental fiscal reforms and the informal economy

In the past few decades many papers have analysed in some depth different environmental tax reforms and the double dividend hypothesis, i.e. the possibility of improving not only the environment but also the economy through the reduction of distortions in the tax system. However, such studies have not modelled the effects of the presence of a shadow economy, even though informal markets account for a significant and growing part of GDP in many developed economies. This paper analyses this important link using a Computable General Equilibrium model for the case of Spain, with historically high unemployment rates and a large informal economy. Since the informal labour is not taxed, when the green tax is introduced and the tax on formal labour is reduced, the pre-existing non-environment-related inefficiency of the tax system is remarkably reduced. Our analysis shows that if the distortions created by the shadow economy are considered, the case for an environmental tax reform where revenues are used to reduce labour taxes is strengthened and the possibility to find a double divided is more likely. Our sensitivity analysis also shows that these results can also be extrapolated to some extent to other countries with different sizes of the shadow economy or different labour market conditions.

The Double Dividend hypothesis in a CGE model: Specific factors and the carbon base

We use a Computable General Equilibrium model to empirically examine the Double Dividend (DD) hypothesis. Using the GTAP model data for Australia, we examine three environmental taxes on the production of energy goods. Following Bento and Jacobsen (2007), we examine the role played by specific factors in the production of energy goods. Our results provide support for the existence of a strong DD in Australia when revenue is recycled through reductions in consumption taxes. The strong DD is larger when the share of specific factors is higher, and is much more pronounced when carbon taxes are charged on the production (origin-based accounting) rather than the usage (destination-based accounting) of carbon. These results draw attention to the importance of the definition of the carbon base and have implications for the scale of carbon leakage.

The Dividend Policy of the Merged Firm, Method of Payment, and Takeover Premium

Dividends, particularly of acquiring firms are influenced by several structural adjustments especially after mergers. Using the dividend clientele hypothesis, we hypothesize that acquirer dividend policy is more likely to change after the merger if dividend policies of firms involved in a stock-based merger are quite different, while it remains unaffected in cash deals. Initially, we analyze the relationship between the acquirer dividends after the announcement and the pre-merger dividend policy of the target. In a second step, a multivariate analysis will be conducted to detect dynamics of takeover premium with the differences in dividend policy between merged firms. From the observation of 663 M&As, we find that acquiring firms are more disposed to adjust their dividend policies to those of targets in case of stock mergers than for mergers in cash. Additional analyses show some evidence that higher acquirer dividend is associated with higher takeover premium in cash deals, but there’s no significant association between difference in dividend policies and takeover premium in stock deals. These results highlight the role of the premium to offset the opportunity cost of target shareholders to receive more dividends in the merged entity when they agree a cash merger, and justify the triviality of the premium in stock deals by the disposal of the acquirer to adjust its dividend policy.