Dividend Premium Research Articles

DIVIDEND POLICY IN MAINLAND CHINA AND THE US: A STUDY ON NON-FINANCIAL LISTED COMPANIES

This paper aims to assess the common characteristics of dividend payers and non-payers in both China and the US, as well as the stability of dividend policies in each respective nation. The study addresses issues related to catering theory, signal theory, smoothing assumptions, and Fama-French hypotheses. Our analysis covers 509 non-financial firms during the period 2006-2016, comprising 419 firms from the US and 90 firms from China. The multinomial regression reveals that past dividend payouts are critical in explaining dividend policy in both the US and China. Firms that have consistently paid higher dividends in the preceding year are more likely to opt for dividend increases rather than omitting dividends, thus aligning with the dividend smoothing hypothesis. Additionally, firm size and stock market performance were found to be significantly influencing dividend payouts across different categories in both the US and China. However, US firms primarily drove dividend payouts through profitability and the dividend premium, while firm size and leverage heavily influenced Chinese dividends. Interestingly, Chinese firms appear to practice a less sticky dividend policy than US firms, implying that the role played by dividend policy in signalling and catering theories in China is less significant than in the US.

Can dividend announcement predict abnormal returns? Tunisia evidence

Purpose – The purpose of this paper is to observe whether the announcement of dividend distribution can affect the abnormal return on the Tunisian stock exchange. Design/methodology/approach – The sample includes 24 non-financial listed stocks in Tunisia Stock Exchange during the years 2004-2013. Company decides to announce its dividend payout policy to signal the market that the firm is now processing future prospects, which will result in changing its stock prices. Findings – The findings yield qualitatively consistent with the previous research. After controlling for the effect of the Politic Crisis in Tunisia during 2010-2013, the result shows that the stock prices move upward significantly after dividend announcements. Abnormal return (AR) and cumulative abnormal return (CAR) from the market model are statistically significantly revealed. Moreover, most event windows show that the stock return becomes lower when the investor sentiment for dividend is higher. Research limitations/implications – The result is limited to the absence of an important number of firms listed in TSE from this period. Practical implications – Investors in Tunisia show their preference for dividend to self-control, satisfaction and increase their profit. “This could be the catering incentive of the firm to decide to pay dividends”. Originality/value – This document provides evidence of Baker and Wurgler's (2002) proposed a new dividend theory; dividend catering theory, Bulan et al (2004) proposed the timing of dividend initiation, Thanwarat Suwanna (2012) document the impact of dividend announcement on stock returns. Even though the results indicate that Tunisian market react to the announcement of dividend by managers. Moreover, the timing of dividend initiation is affected by the investors’ sentiment, measured by the dividend premium. Tunisian investors react positively to the announcement to distribute dividend from firms especially in abnormal economic situation explained by the Tunisian politic crisis.

Determinants of UK companies’ dividend policy

This study examines the major factors influencing UK companies listed on the Financial Times Stock Exchange (FTSE) 100 stock market's dividend policy (as determined by the dividend payout ratio) over 32 years, from 1990 to 2022. The dividend premium and free cash flow components make up the catering dividend. The outcomes of a wide range of panel data analysis regressions, such as Generalized Method of Moments (GMM) and Two-Stage Least Squares (2SLS) regressions, clearly show that the catering dividend significantly impacts UK firms' dividend policy. On the other hand, the dividend policy benefits from the dividend premium, which increases it by 12% to 17% on average. Free cash flow, on the other hand, has a negligible negative impact on the dividend policy by just 5%. It is crucial to mention that this outcome varies depending on the models and regression techniques used. Furthermore, this study emphasizes how important it is for a firm's size and profitability to play a key role in determining how it will implement its dividend policy. Financial leverage also becomes important since a company's dividend payment ratio decreases when it relies more heavily on debt in its capital structure. By using GMM and 2SLS regressions, this study carefully tackles the endogeneity issue, and the results hold up even when the endogeneity effect is reduced. Ultimately, this study emphasizes how important dividend catering components are in guiding UK companies' dividend policies, arguing that CEOs and legislators should pay more attention to this.

The Life Cycle And Dividend Premium Toward Dividend-Paying Behavior In Manufacturing Sector Companies

This study aims to determine the independent variables that are able to predict dividend payment behavior and prove the occurrence of dividend catering theory in manufacturing companies that are in the growth phase. In determining the research sample, the researcher used purposive sampling. The number of samples in this study were 7 manufacturing companies with a total of 92 observations during 2015 – 2019. This study uses multinomial logistic regression analysis on SPSS 25. The results show that the dividend premium and profitability variables get positive and significant values in the high dividend payout model. as well as low dividend payout models. While the firm size variable gets a positive and significant value in the high dividend payout model, it does not get a significant value in the low dividend payout model. This means that in the high dividend payout model, the variables of premium dividends, profitability, and firm size are able to predict the behavior of dividend payments in manufacturing companies that are in the growth phase. However, in the low dividend payout model, only the dividend premium and profitability variables are able to predict the behavior of dividend payments in manufacturing companies that are in the growth phase. The results also prove that the dividend catering theory is proven to occur in manufacturing companies that are in the growth phase of 2015 – 2019.

THE INFLUENCE OF PROFITABILITY, FINANCIAL LEVERAGE AND FREE CASH INFLOW ON CATERING DIVIDENDS AMONG MANUFACTURING COMPANIES LISTED IN INDONESIA STOCK EXCHANGE DURING 2017-2020 PERIOD

THE INFLUENCE OF PROFITABILITY, FINANCIAL LEVERAGE AND FREE CASH INFLOW ON CATERING DIVIDENDS AMONG MANUFACTURING COMPANIES LISTED IN INDONESIA STOCK EXCHANGE DURING 2017-2020 PERIOD

THE INFLUENCE OF PROFITABILITY, FINANCIAL LEVERAGE AND FREE CASH INFLOW ON CATERING DIVIDENDS AMONG MANUFACTURING COMPANIES LISTED IN INDONESIA STOCK EXCHANGE DURING 2017-2020 PERIOD

The purpose of this study was to examine the effect of profitability, financial leverage, and free cash inflow on the catering tip dividend in manufacturing companies listed on the BEI. The research time span is from 2017-2020. By using EViews 11, the results show that “profitability has a positive and significant effect” on dividend premium, Influence has a negative and significant effect on premium dividends, and free cash inflow has a positive effect on premium dividends in manufacturing companies listed on the Indonesia Stock Exchange for the 2017-2020 period.

Factors Affecting Dividend Policy in Indonesian State-Owned Enterprises (SOEs)

This study examines factors affecting dividend policy with firm size, leverage, and profitability as control variables. Among the management policies aimed at improving the welfare of stakeholders, the result is in the form of dividends. Investors who receive dividends from companies that distribute dividends expect the company's share price to increase. The study population was all publicly listed SOEs listed on the IDX in 2022, with 20 companies in the observation year for 11 years from 2011 to 2021. The determination of the sample in this study used the non-probability sampling method with purposive sampling technique so that the total sample into 220 observed companies. This study uses multiple linear regression. The results showed that dividend premium, free cash flow, and audit delay had a significant positive effect on dividend policy, and firm size, leverage, and profitability were able to be control variables for this direct relationship.

KEBIJAKAN DIVIDEN DALAM PERSPEKTIF CATERING THEORY

This research is aimed to investigate the role of dividend premium and share repurchases in influencing the companies’ dividend policy. The theory used in this research is catering theory. This research uses secondary data obtained by using observation method. The data source in this research is the annual reports of manufactur companies listed on the Indonesia Stock Exchange (IDX) for the period 2017 to 2019. The sample were selected using purposive sampling method, with a total of 98 companies. This research uses analysis double linear regression test using SPSS version 20 software. The result of this research indicate that dividend premium has a positive and significant effect on dividend policy. Share repurchases has a negative and significant effect on dividend policy

Catering to investor sentiment for dividends: contestability or collusion of the largest shareholders?

Research background: Dividend payouts have been the subject of scientific research for many years. Although many studies focus on the impact of ownership on dividend payouts, there is still a lack of research on the influence of the contestability and collusion of the largest shareholders on the catering effect of dividends. This research gap motivated us to investigate this issue and determine whether the interactions between large shareholders have an impact on aligning dividends with investor sentiment. Purpose of the article: The article assesses the impact of the relationship between the largest shareholders (i.e., contestability or collusion) on the adjustment of dividend payouts to investor sentiment. The following research hypothesis has been formulated: If there is contestability between the first and second-largest shareholders, the strength of the catering effect of the dividend is greater than in the case of collusion, both in the years of positive and negative dividend premiums. Methods: The main research method is a panel regression model (pooled OLS and fixed effects). We use the F test, the Breusch-Pagan test, and the Hausman test. Our research is supplemented with descriptive statistics and the Pearson correlation coefficient. The research sample consists of Polish companies from the electromechanical industry sector listed on the main market of the Warsaw Stock Exchange (WSE) in the years 2009?2020. Findings & value added: The main findings are as follows: a) if a dividend premium is positive and the second-largest shareholder holds many shares, the strong catering effect of dividends is observed; b) there are only two years of negative premium, which does not allow to conclude that both the catering effect and the impact of interactions between the largest shareholders on dividend payouts do not exist when dividend premium is negative. We propose pioneering research concerning the catering effect in the context of interactions between the largest shareholders. Its long-term theoretical value added is the original and interdisciplinary research combining financial, behavioral and governance aspects. Our research results may be of particular interest to foreign investors looking for new opportunities to invest their capital abroad, also in Poland.

Is information asymmetry the ground of investor sentiment in the Indonesian capital market

'Information asymmetry premium' is used to get an answer to what underlies the emergence of investor sentiment on dividends on the capital market. Previous research are only able to prove that 'dividend premium', which acted as investor sentiment on dividend, affected dividend policy. However, the conditions underlying the emergence of investor sentiment on dividends have not yet been answered. This research aims to prove that investors do put sentiment toward companies who pay dividend because dividend payers' information asymmetry is higher than dividend non-payers', and vice versa. This research uses binary logistic regression and panel least square on unbalanced data. The results can prove that dividend premium is a subset of information asymmetry premium in confirming investor sentiment on dividends toward the propensity to pay dividends. It is proven that the basis for dividend payment is driven by investor sentiment that was formed because of high information asymmetry.

Exploiting the dividend month premium: evidence from Germany

Dividend payments are firm events on a recurring and predictable basis. High returns in the period between announcement-date and ex-dividend date are the main driver for the so-called dividend month premium, which are positive abnormal returns in months in which corporations are predicted to issue dividend payments. In our empirical analysis of the German stock market, we find a robust dividend month premium, which is particularly high for stocks with positive dividend surprise. Knowing the dates of dividend announcements and payments enable portfolio managers to exploit the dividend month premium. Also taking into account tracking error and transaction costs, we show that simple portfolio-enhancing strategies lead to highly significant abnormal returns.

What Can explain catering of dividend? Environment information and investor sentiment

This paper offers a new evidence of the catering theory of dividend explained by three proxies proposed by Baker and Wurgler in the emerging market. Even although the result Investor preference for dividend is explained by different factors related to market situation and investor psychology is different from markets, it can be the evidence supporting the catering theory of dividend, not only in well-developed markets, but also in emerging markets such as our country. The purpose of this paper is to examine whether investor sentiment and market situation can influence the investor demand for dividend in 6 countries from MENA region. The sample includes all listed stocks in the Stock Exchange of 6 countries from MENA region during the years 2004–2013, excluding the firms from financial industries and firms with incomplete information. The catering theory explained by three proxies is measured by dividend premium, modified dividend premium and the previous market to book. Investor sentiment explains by four proxies, and the market situation explains by some factors. The findings yield qualitatively consistent with the previous research. After controlling the effect of investor sentiment and market situation, the result shows that the investor demands for dividend affected by behavior and market reaction. Furthermore, investors prefer dividends more in a bear market (underperforming) rather than bull markets (underperforming). Investors demand more dividends when their sentiment is negative. The findings of the study suggest that fair induction of corporate his feeling and the development of the financial market can help investor to take an efficacy decision to demand or not dividend from firms.

The impact of catering incentives on the dividend policy: evidence from Turkish firms

PurposeThe purpose of this paper is to empirically analyse the propensity to pay dividends and investigate whether the catering theory is valid in an emerging market.Design/methodology/approachThe sample of this study comprises listed firms on the stock market of Turkey, Borsa Istanbul, with 2,438 observations during the period 1999–2015. In line with previous studies in the literature, appropriate control variables are used that may have an impact on Turkish firms' dividend policy. Control variables are examined in the likelihood of paying dividends by using Fama–Macbeth (1973) style cross-sectional logistic regressions. In addition, the linkage between the dividend premium and the propensity to pay is revealed to test the validity of the catering theory.FindingsThe findings of the study confirm the tenets of the catering theory for Turkey. When a positive dividend premium exists, that is when investors demand dividend, firms cater them and distribute dividend; on the contrary, when there is no demand, firms prefer not to pay. The effect of catering incentives on the dividend policy provides useful information for managers because the catering theory claims that investors' demand for dividends has an impact on the valuation of firms.Originality/valueIn the aftermath of the 2001 financial crisis, Turkey implemented far-reaching reforms and policy initiatives to improve the efficiency of capital markets and to overcome the obstacles sourcing from their culture and civil law origin. With the adoption of these major economic and structural reforms, as a civil law origin country, Turkey has managed to ameliorate the protection of investors as in common law countries. Ferris et al. (2009) state that the catering theory is applicable to firms in common law countries but not in civil law countries. In addition, prior research is not so extensive regarding the impact of catering incentives on the dividend policy of firms in emerging markets. The results of the analyses suggest that the catering theory is valid for Turkey as a civil law origin emerging country, and to the best of authors' knowledge, this study is the first to test the catering theory in the Turkish capital markets.

Managerial ownership and catering to investor sentiment for dividends: evidence from the electromechanical industry sector on the Warsaw Stock Exchange

Research background: Dividends have been the subject of scientific research for decades. However, many aspects of payout policy are still controversial, and research provides contradictory results. One research area is the impact of the ownership structure on dividend policy. Although many scientific studies on this subject have been conducted, there is still a lack of research on the impact of managerial ownership on adjusting the dividend payout to investor sentiment. It was this research gap that motivated us to investigate the issue.
 Purpose of the article: The aim of the paper is to evaluate how managerial ownership affects the disposition of companies to adjust their dividend payouts to investor sentiment. Achieving that objective provides stock market investors with additional information and allows for its practical implications as they seek the best investment opportunities.
 Methods: The main method of investigation is a panel regression model with random effects. This model is used based on the Breusch-Pagan test and the Hausman test, while the information criteria of Akaike, Schwarz, and Hannan-Quinn are also taken into consideration. Additionally, descriptive statistics and the Pearson correlation coefficient are used. The research sample consists of Polish companies from the electromechanical industry sector that are listed on the main market of the Warsaw Stock Exchange (WSE) in the period 2009?2018.
 Findings & Value added: Our findings reveal that: 1) an increase in dividend premium results in a higher payout in order to cater to investor sentiment; 2) if the manager holds the greatest number of shares, the catering effect weakens. The main contribution of the paper is a new approach to the catering theory of dividends, which includes the impact of managerial ownership.

Dividend month premium in the Korean stock market

The dividend month premium is the phenomenon that firms have abnormal returns in predicted dividend month. This study aims to examine the dividend month premium in the Korean stock market, using common stocks listed on the KOSPI and KOSDAQ from January 1999 to December 2016. Abnormal returns are estimated using the following asset price models: capital asset pricing model, Fama–French three-factor model and the Fama–French–Carhart four-factor model. This study finds positive abnormal returns in predicted dividend months, and even for the within-firm portfolio that buys stocks in the predicted dividend months and sells the same stocks in other months. The price impact and the subsequent reversals are greater with lower liquidity and higher dividend yield, implying that the price pressure from dividend-seeking investors affects this dividend month premium. In addition, the anomalies with the pre-declaration stock are smaller than the post-declaration stock, suggesting the necessity to improve the cash dividend policy of post-declaration for market efficiency.

Family control, external governance mechanisms, and dividend payouts

This paper examines the ways in which three external governance mechanisms, namely market preferences, institutional investors, and debtholder monitoring, influence dividend payout decisions under a family-governance system. We find that family firms issue lower dividends when the dividend premium is high in the market. Institutional investors and family-controlled governance mechanisms interact to increase dividend payouts. Family firms under greater debtholder monitoring pay out more cash to shareholders. Our findings generate important policy implications.

Does catering behavior persist? Evidence on dividend sentiment in emerging financial markets

This study tests the catering theory and explores the main determinants of dividend payments across a sample of eleven emerging countries. There is evidence of catering to investor sentiment for dividends in Middle Eastern and North African countries. Dividend payers are mature, profitable, large firms with lower growth opportunities, and high dividend premiums, which supports the catering, lifecycle, and agency theories. Catering behavior persists even after controlling for the effect of Arab Spring. Difference-in-difference analysis shows that countries highly affected by the political transition period are less likely to pay dividends in the post-Arab Spring period than less affected countries. Catering decreases significantly in the post-Arab Spring period as compared with during- and pre-Arab Spring periods, suggesting that investors prefer that managers retain earnings to reinvest and grow during unstable economic conditions. Furthermore, catering persists in countries with high corruption levels and poor legal quality to reduce agency cost, and substitute for weak legal systems with poor enforcement of laws.

Catering dividend: Dividend premium and free cash flow on dividend policy

This study aims to analyze how the effect of catering dividend as measured by dividend premium and free cash flow on dividend policy. This study uses quantitative data types and secondary data sour...

Catering theory and dividend policy: A study of MENA region

According to the catering theory of dividends, a company decides to distribute its dividends according to investor demand related by a dividend premium that results in this request. This study focuses on the impact of the catering theory of dividends of the 600 MENA companies in the financial industry listed in different stock exchanges of Tunisia, Morocco, Egypt, UAE, Saudi Arabia, and Kuwait during the period 2004-2010. The study employs an event study methodology in examining the effect of investor demand for dividends on the managers’ decision to distribute and change the amount of dividends. Research result indicates that companies pay dividends when demand is strong, i.e. when investors value companies that pay in a “depressed” or “bearish” market environment. Furthermore, catering persists even after controlling for the effect of some variables like tax and risk. The results confirm that the decision to change the amount of the payments depends on investor demand and the market premium resulting from the payment of dividends. Even though the result is not strong, it can be the evidence supporting the catering theory of dividend, not only in well-developed markets but also in emerging markets characterized with civil law characterized by low governance index and investor protection such as our MENA zone countries.

The propensity to pay dividends: empirical evidence from the MENA region

This paper investigates the relation between stock market sentiment and firms' propensity to pay dividends in the MENA region for the period 2000–2015. Using conventional determinants of cash distributions as control variables, our results show that the tendency to pay dividends is negatively related to the aggregate investors' sentiment but positively related to the dividend premium. Unlike prior literature, we report no association between firms' dividend policy and issues of stock market liquidity. Overall, we suggest that corporate payout policies in the case of the MENA region can best be explained by the dividend catering hypothesis.