Dividend Irrelevance Research Articles

The effects of tax and regulatory changes on commercial bank dividend policy

The literature concerning the Tax Reform Act of 1986 (TRA) is extensive, but generally does not consider dividend policy changes related to TRA’s passage. One exception is Casey et al., but that work omits banking. An examination of banks is especially apt given TRA’s changes in tax rates and municipal bond categorization. Results show bank dividend policy to be different from other industries, as banks show no relation to past growth rates, beta, or an insider ownership as Rozeff’s model holds. The results support the idea that the lower the taxes, the higher the payout which is contrary to the dividend irrelevancy argument. However, the results are not robust in tests using data from a later period meant to more closely examine changing capitalization requirements’ impact on dividend policy.

Linear Information Dynamics, Dividend Irrelevance, Corporate Valuation and the Clean Surplus Relationship

This paper adopts the linear information dynamics framework pioneered in Ohlson (1979) and Garman and Ohlson (1980) (and subsequently used in, in particular, Ohlson, 1989, 1995 and Feltham and Ohlson, 1995) for thinking about desirable properties of earnings numbers in the context of the market valuation of firms, where such valuations are fundamentally based on expected future dividends. The first purpose of this paper is to consider the valuation-relevance of clean surplus earnings when there are two distinct components of clean surplus earnings whose evolutions are governed, along with book value and dividends, by a system of linear information dynamics, and dividend irrelevancy holds. The system of linear information dynamics assumed ensures that corporate value is a linear combination of the two components of clean surplus earnings, book value and dividends. One question becomes—under what circumstances are clean surplus earnings (combined with book value and dividends) sufficient for corporate valuation without a knowledge of the breakdown of clean surplus earnings into its separate components? This paper develops the conditions defining these circumstances. At the other extreme, another question can be asked—under what circumstances is one component of clean surplus earnings irrelevant to corporate valuation? This paper identifies some conditions that identify these latter circumstances. The second purpose of the paper is to identify implications of these results for both the traditional arguments about the desirability of measuring earnings on a clean surplus basis and also the more contemporary issues surrounding FRS3. A third purpose is to discuss the implications of the overall analysis for the empirical testing of the relationship between market prices and earnings numbers, and for empirically-justified definitions of maintainable earnings.

Managerial shareownership, voting power, and cash dividend policy

While the classical dividend irrelevance theory implies that shareholders unanimously support the firm's dividend policy, managerial benefits from free cash flow, heterogenous personal tax rates and information asymmetries give rise to internal shareholder conflicts over the dividend decision. We conjecture that observed dividends resolve this conflict by consensus across heterogenous shareholder groups. We develop and test this consensus-dividend hypothesis using Canadian firms where managers tend to own a large amount of voting stock. The empirical evidence indicates that cash dividends decrease as the voting power of owner-managers increases, and are almost always zero when owner-managers have absolute voting control of the firm. Panel data estimation as well as factor-analytic techniques give further empirical support for the consensus-dividend hypothesis.

Investment performance of high income stocks over up and down markets

This paper presents empirical tests of the hypothesis that high-dividend-yield stocks offer investors significantly lower systematic risk in down markets. While high-yield stocks have lower levels of systematic risk overall, there is no evidence in this study that lower systematic risk is achieved in down markets for stocks with high-yield components in their total rates of return. This finding is robust over a variety of test procedures and provides additional support for dividend irrelevance propositions.

Capital Structure and Dividend Irrelevance with Asymmetric Information

The Modigliani and Miller propositions on the irrelevancy of capital structure and dividends are shown to be valid in a large class of models with asymmetric information. The main assumption is that managerial compensation is chosen optimally. This differs from most of the recent articles on this topic, which impose by fiat a suboptimal contract. Even when imperfections internal to the firm preclude optimal investment, there is a separation between incentives and financing. We conclude that corporations should move toward contracts with better incentives, and that new models should be built that recognize the limitations to optimal contracting. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

A test of dividend irrelevance using volume reactions to a change in dividend policy

Abstract We investigate the implication of clientele theories that changes in dividend policy should result in a marked increase in trading volume as shareholder clienteles change. With 192 firms announcing their first cash dividend we document both an increase in trading volume and firm value around the announcement date. We integrate these results to distinguish between the volume response to good news about the future and clientele adjustments to a change in dividend policy. Our results suggest that volume increases primarily in response to the signal about future earnings contained in the dividend. Clientele adjustments are small.

Leverage and Dividend Irrelevancy Under Corporate and Personal Taxation

The Journal of FinanceVolume 35, Issue 2 p. 453-464 Impacts of Taxes on Financial Decision Leverage and Dividend Irrelevancy Under Corporate and Personal Taxation HARRY DeANGELO, HARRY DeANGELOSearch for more papers by this authorRONALD W. MASULIS, RONALD W. MASULISUniversity of Washington, and University of California at Los Angeles and Securities and Exchange Commission. This paper was prepared prior to employment by the Commission, and does not necessarily reflect the views of the Commission or its staff. We would like to express our appreciation to Linda DeAngelo, Michael Jensen, and David Mayers for their helpful comments.Search for more papers by this author HARRY DeANGELO, HARRY DeANGELOSearch for more papers by this authorRONALD W. MASULIS, RONALD W. MASULISUniversity of Washington, and University of California at Los Angeles and Securities and Exchange Commission. This paper was prepared prior to employment by the Commission, and does not necessarily reflect the views of the Commission or its staff. We would like to express our appreciation to Linda DeAngelo, Michael Jensen, and David Mayers for their helpful comments.Search for more papers by this author First published: May 1980 https://doi.org/10.1111/j.1540-6261.1980.tb02176.xCitations: 65 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume35, Issue2May 1980Pages 453-464 RelatedInformation

Leverage and Dividend Irrelevancy Under Corporate and Personal Taxation

Leverage and Dividend Irrelevancy Under Corporate and Personal Taxation

Leverage and Dividend Irrelevancy Under Corporate and Personal Taxation: Discussion

Leverage and Dividend Irrelevancy Under Corporate and Personal Taxation: Discussion

General Equilibrium with Financial Markets: Existence, Uniqueness, and Implications for Corporate Finance

THE OBJECT OF THIS PAPER is to examine some critical issues in corporate finance in the context of a general equilibrium framework. Rather then take Arrow-type [1] state prices as a starting point, we shall start with share and bond prices and show how, in a general equilibrium framework, these prices relate to the state prices.1 In particular we establish an equivalence theorem for a general equilibrium with financial markets and Arrow markets with state-dependent prices. We then discuss the two famous results of Modigliani and Miller [7, 8] in the context of our markets. While the MM dividend irrelevance theorem is true-though only in a specific sense-we show that there is a meaningful sense in which capital structure is fixed in the presence of firm bankruptcy, no matter what the probability of such a bankruptcy, and without any attendant non-perfect market phenomena such as bankruptcy costs or secured debt.2 Starting with a two-period, one-commodity model (this latter assumption is merely simplifying and is not necessary to the results of the paper), we outline the nature of production: Firms purchase inputs today in order to produce from them tomorrow, but production tomorrow from today's inputs is uncertain, as it depends on the state of nature at the time of production. This state of nature affects the production function. To finance today's purchases of inputs, each firm may sell either new equity or bonds. The former merely dilutes the earnings of equity holders in the second period. Bonds, on the other hand, have a prior claim on firm income in the second period: If the income from production suffices to

AN INTER-TEMPORAL APPROACH TO THE OPTIMIZATION OF DIVIDEND POLICY WITH PREDETERMINED INVESTMENTS: COMMENT

The Journal of FinanceVolume 29, Issue 1 p. 258-259 Comment AN INTER-TEMPORAL APPROACH TO THE OPTIMIZATION OF DIVIDEND POLICY WITH PREDETERMINED INVESTMENTS: COMMENT M. J. Brennan, M. J. BrennanAssistant Professor, University of British Columbia.Search for more papers by this author M. J. Brennan, M. J. BrennanAssistant Professor, University of British Columbia.Search for more papers by this author First published: March 1974 https://doi.org/10.1111/j.1540-6261.1974.tb00043.xCitations: 4 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat No abstract is available for this article.Citing Literature Volume29, Issue1March 1974Pages 258-259 RelatedInformation

A NOTE ON DIVIDEND IRRELEVANCE AND THE GORDON VALUATION MODEL*

The Journal of FinanceVolume 26, Issue 5 p. 1115-1121 Article A NOTE ON DIVIDEND IRRELEVANCE AND THE GORDON VALUATION MODEL* Michael Brennan, Michael BrennanThe University of British ColumbiaSearch for more papers by this author Michael Brennan, Michael BrennanThe University of British ColumbiaSearch for more papers by this author First published: December 1971 https://doi.org/10.1111/j.1540-6261.1971.tb01752.xCitations: 15 ‡The author is grateful to a referee for helpful comments. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume26, Issue5December 1971Pages 1115-1121 RelatedInformation