Dividend Premium Research Articles

Are investors desires for dividend increases stronger than dividend initiation

This study aims to explore whether information asymmetry premium (IAP) as the foundation of the investors' desire in the dividend increases decision is stronger than the dividend initiation decision. This study finds that IAP can significantly complement the dividend increases decisions and substitute dividend premium for dividend initiation. The results of the study support Li and Lie (2006) and Chazi et al. (2018), who fleshed out Baker and Wurgler (2004b). The findings of this study show that the investor's desire towards dividend increases reflects investor sentiment on dividends, explained through the level of information asymmetry between dividend payers and non-payers. Further analysis shows that irrational investor behaviour in expecting dividend increases to be paid continuously is significant compared to dividend initiation. This research contributes to behavioural finance research in bonding dividend catering incentives and dividend signaling theory.

Impact of Catering Incentives on Dividend Payment Decisions: Evidence from Indian Firms

Manuscript type: Research paper Research aims: The present study examines whether the catering incentives of dividends can influence firms’ dividend payment decision for 781 sample firms listed on the National Stock Exchange (NSE) of India during the period of 1995-2015. Design/Methodology/Approach: This study uses dividend premiums to measure the catering incentives of the dividends. The firms’ dividend payment decision is measured by the propensity to pay dividends, and the decision to change dividend payments. Research findings: The empirical results indicate that the catering incentives of dividends have a significant positive impact on the changes in the propensity to pay dividends. The findings suggest that the higher dividend premiums indicating the investors’ higher demand for dividends can induce managers to increase the amount of dividends paid. Firm managers are less likely to cut or omit dividends when the investors’ demand for dividends is high as reflected by the higher dividend premiums. Theoretical contribution/Originality: The catering theory of dividend which is based on investor sentiment is new, and the empirical evidence supporting this theory is limited. This study aims to contribute to existing literature by examining whether the catering incentives of dividends can influence firms’ dividend payment decision, in the context of India, during the period of liberalisation. Practitioner/Policy implication: This study has an implication for the management team. The investors in the Indian capital market show a preference for dividend payment. Firm managers could use these catering incentives for deciding dividend payments to investors. Research limitation/Implications: As the study has not used the primary survey approach to collect data, it could not examine the corporate managers’ and the investors’ views about the determinants of the dividend policy. New insights could thus be provided by analysing the behaviour of other forms of dividends like bonus shares, stock splits and the share buybacks. Keywords: Catering Incentives, Dividends, Dividend Policy, Dividend Premium, Propensity to Pay JEL Classification: G30, G35

A Macro-Finance Term Structure Model for Bond and Dividend Discount Rates

We present an arbitrage-free affine term structure model that jointly prices U.S. Treasury bonds, S&P 500 dividend strips and the S&P 500 equity index as a function of the economy. Our model allows us to extract new insights on how short- and long-duration dividends and their discount rates respond to changes in the economy. Within the affine model, we obtain accurate decompositions of discount rates into risk free rates, inter est rate and dividend risk premiums. Our model is able to price bond and equity claims with high precision and predict economic variables and returns in bonds and short-horizon dividends.

Investor Sentiment and Firm Financial Performance of Malaysian IPO Firms: Pre and Post Financial Crisis

The main purpose of this study is to investigate an important issue in behavioural finance area that is the role of investor sentiment in determining firm performance, alongside with market timing and other fundamental firm factors in the context of Malaysian market. The impact of pre and post financial crisis during study period of 2004 to 2015 is incorporated in the analysis. The study uses a balanced panel data of 143 IPO firms in Malaysia during the study period. The sentiment index is developed using panel data cross section based on three IPOs proxies, which are IPO volume, market turnover and dividend premium. The findings indicate that market timing is found to have a strong influence towards firm performance with a positive and high level of significance relationship during pre and post financial crisis. Whereas investor sentiment does influence firm performance, particularly when timing is proxied by initial return before the financial crisis period. Other firm specific factors, growth show very strong positive relationship with firm performance. The remaining factors, namely tangibility of asset, profitability, size and industry show mix results either consistent or inconsistent with past literature irrespective of pre or post financial crisis. The finding offers a useful reference for firm managers’ to consistently time the market for the new and subsequent issue. While the investors have to pay attention on important information available in the market than become overly optimistic about future prospect of any investment as firm will continue to exploit timing strategy in their financing decision.

Determinants of dividend policy: evidence from an emerging and developing market

PurposeThe purpose of this paper is to identify the determinants of dividend policy in an emerging and developing market.Design/methodology/approachThe study employs a quantitative approach using 191 Sri Lankan firms and 1,337 firm-year observations as the sample. The authors apply a Binary Logistic Regression model to uncover the determinants of the propensity to pay dividends, and a Fixed Effect Panel Regression to investigate the determinants of dividend payout.FindingsThe authors identify past dividend decision, earnings, investment opportunities, profitability, free cash flow (FCF), corporate governance, state ownership, firm size and industry influence as the key determinants of propensity to pay dividends. In addition past dividends, investment opportunities, profitability and dividend premium are identified as the determinants of dividend payout. Moreover, there is a feedback between dividend yield and profitability in one lag and between dividend yield and dividend premium in two lags, as short-term relationships. Hence, past dividend decision or payout, profitability and investment opportunities are a common set of determinants with implications for both propensity to pay dividends and its payout. The findings support theories of dividends such as signaling, outcome, catering, life cycle, FCF and pecking order.Practical implicationsThe findings are important for investors, managers and future research. Investors should focus on the determinants identified by our study when making investment decisions whereas managers should practice the same when formulating appropriate dividend policies for their firms. Future research should rely on propensity to pay dividends and its payout simultaneously to promote a theoretical consensus on the dividend determinant puzzle.Originality/valueThis is the first study that investigates determinants of propensity to pay dividends and dividend payout along with short-term relationships in a single study.

Catering Theory Of Dividend In Dividend Policy: The Evidence From Indonesia

This study aims to examine the possibility of companies in paying dividend if there are investors demands for dividends. Researcher used purposive sampling for determine the sample.Sample are used as many as 527 companies with total are 4375 observations during 2007-2016. The data analysis technique used logistic regression in Eviews 9. The results show that investors demands for dividends (catering incentives) were measured by dividend premiums have a positive and significant correlation to dividend payout decisions. It means that companies have bigger probability for paying dividend if the are investors demands. Probability of companies to pay dividend up 2.19 times for increasing a unit of dividend premium.

Catering to the Whole Spectrum of Dividends: Evidence from the Taiwan Stock Market

This study examines the presence of catering for various dividend policies in Taiwanese firms, including cash, stock and dual dividends. Different from prior results in the literature, we find that the catering phenomenon exists for these three types of dividend decisions. When one type of dividend premium (i.e., cash dividend) is high, managers are more likely to issue the same type of dividend and less likely to issue the other type of dividend (i.e., stock dividend). Catering persists even after controlling for the effects of a firm’s characteristics, risk and external policy, as well as macroeconomic situations. JEL Classification: G35, C23

A behavioral perspective on corporate dividend policy: evidence from France

PurposeThis paper empirically examines the catering theory of Baker and Wurgler (2004) in the particular context of France. Considering the characteristics of French market – known for its high concentration of capital – it attempts to highlight the role family control plays in the managerial tendencies to satisfy non-informative dividend demands.Design/methodology/approachThe paper focuses on a large data set of French firms included in the SBF-250 index over a period of 1992-2010. It uses a variety of dividend policy measures, including dividend premium, percentage of dividend-paying firms and probability of paying dividends. It adopts appropriate empirical specifications (time-series and probit models) to substantiate the research hypotheses.FindingsThe empirical findings show that the percentage of payers rises with the dividend premium, and that the dividend premium and the confidence index of French households are negatively correlated. This reflects the sensitivity of dividend demand to investor sentiment. Moreover, results of multivariate panel regression show a positive and statistically significant effect of the dividend premium on the firm’s tendency to pay, after controlling for firm characteristics. Finally, it finds that the dividend premium effect disappears in the case of family-controlled firms. This result is in line with the long-term orientation of family firms.Research limitations/implicationsThe study focuses on the dividend payment behavior of French firms. Although dividends are deeply engrained in France, authors believe that it will be interesting to look at the whole payout policy and particularly the role played by share repurchases.Practical implicationsAddressing short-term catering and managerial opportunism, the results of this study may be of interest for shareholders, potential investors and regulators.Originality/valueTo the best of the authors’ knowledge, this is the first study that provides empirical evidence on Baker and Wurgler (2004) catering theory by considering the particularity of French market where, unlike the US, percentage of dividend-paying firms is high and the corporate ownership structures are different.

A Model-Free Term Structure of U.S. Dividend Premiums

We construct a model-free term structure of dividend risk premiums from option prices and aggregate analyst forecasts. Applying the method to 2004-2017 U.S. data, we find it is hump-shaped. Its level increases in business cycle contractions and decreases during expansions. The on average negative dividend term premium steepens in contractions and flattens in expansions, driven by strong variations in short-horizon dividend premiums. Buying the next year of S&P 500 dividends whenever the one-year dividend risk premium is positive has earned twice the Sharpe ratio of the index.

Investor sentiment: Does it augment the performance of asset pricing models?

This paper examines whether incorporating various investor sentiment measures in conditional asset pricing models can help to capture the impact of size, value, liquidity, and momentum effects on risk-adjusted returns of U.S. individual stocks. Using monthly data for the period January 1980 to December 2014, we determine the significance of equity fund flow, initial public offering (IPO) first day returns, IPO volume, closed-end fund discount, equity put-call ratio, dividend premium, change in margin debt, and sentiment index, by including them as conditioning information in asset pricing models. Our results show that sentiment augmented asset pricing models significantly capture the impacts of size, value, liquidity, and momentum effects on risk-adjusted returns. In particular, we observe that conditioning beta on equity fund flow, IPO first day return, and put-call ratio capture the predictive power of equity characteristics for all the asset pricing models.

The Impact of Investors' Excessive Biased Expectations on Opaque Financial Reporting

This research investigates the influence of investors' biased expectations on the opacity of financial reporting. Excessive biased expectations reflect optimism or pessimism of investors toward certain security or a particular financial market. Sample size consists of 83 companies listed in the Egyptian stock exchange. Three measures can be used to measure investors' biased expectations: Share Turnover, E Share, and dividend premium. Three measures can be used to measure financial reporting opacity: earnings management, quality of auditors and the type of audit opinion. Results imply that, companies with greater opaque financial reporting environment are more affected by excessive biased expectations of investors.

Dividend premium: Are dividend-paying stocks worth more?

This paper reports that the relation between dividend payout and firm value is positive. Panel data regressions suggest that the dividend premium for firms' equity is 17.4% and the dividend premium for firms' assets is 7.1%. The tests using propensity score matching methodology report a lower – but still positive and statistically significant – dividend premium: 12.5% for equity and 6.1% for assets. Thus, stock prices of dividend payers are greater by 12.5% or 17.4% on average (depending on methodology) compared to those of nonpayers. We find that policy-related economic uncertainty and the proportion of firms paying dividends explain more than half of the variation in dividend premium for assets.

Determinants of payout policy and investment attractiveness of companies listed on the Warsaw Stock Exchange

Research background: Making decisions concerning the payout policy depends on many diversified neoclassical and behavioral determinants. Although these factors are well-described in the literature, there is still a research gap concerning the lack of a comprehensive impact model of payout policy determinants on the investment attractiveness of shares.
 Purpose of the article: The aim of this paper is to present the diverse nature of the relation-ship between different forms of cash transfer to the shareholders and in-vestments attrac-tiveness of public companies in the context of various determinants of payout policy. The possibility of achieving this objective was conditioned by the empirical verification of research hypothesis stating that the diversify of payout forms is accompanied by the different determinants of payout policy that condition an effective investment of stock investors? capital.
 Methods: The empirical research was conducted among the electromechanical companies listed on the Warsaw Stock Exchange in the years 2006-2015. The data for analysis were obtained from Notoria Service database and Stock Exchange Yearbooks. The calculations were carried out using the methodology of taxonomic measure of investment attractiveness, as well as dividend premium and share repurchase premium.
 Findings & Value added: The final conclusion of our research is that the companies con-ducting the payout policy in different forms of cash transfer differ in terms of many charac-teristics, such as: financial standing, market value, ownership structure, company?s size and age. Moreover, their investment attractiveness differs according to regularity of payment, stock exchange situation and shareholders? preferences. The value added of this paper is a new approach to the evaluation of capital investment with a special emphasis on the determinants of payout policy.

Investors' Sentiment and the Stock Market Behavior: An Empirical Analysis of the Saudi Stock Market

Lately, investors’ sentiment has become one of the major concentrations of finance literature on asset pricing model. Many research findings argued that changes in investors’ sentiment measure could have an impact on stock returns and volatility and that investors’ sentiment might be an essential variable in the investment decision making. The main purpose of this dissertation is to explore investors’ sentiment as one area of behavioral finance that has not been searched before in the Saudi stock market. This research attempts to come closer at discussing two highly important topics involving investors’ sentiment. Firstly, we will investigate the impact of investors’ sentiment measured by an exclusive index that was constructed for the purpose of this research using principal component approach and a number of sentiment proxies such as the trading volume, and dividend premium on both stock market return and volatility, taking into account some controlling variables the researcher has found them very relevant in this area of investigation, such as liquidity and book-to-market ratios. Secondly, this dissertation will study the relationship of investors’ sentiment and the mispricing of the whole Saudi stock market. This dissertation should have useful practical implication for investors, fund managers, financial advisors and policy makers. It will give the investors a better understanding of many aspects of their sentiment. It will also help fund managers and financial advisor to conduct better price forecasting, and finally it is crucial for policy makers who should work on stabilizing investor sentiment in order to decrease stock market volatility and uncertainty.

Dividend policy and the catering theory: evidence from the Taiwan Stock Exchange

Purpose The purpose of this paper is to examine the dividend policy for firms listed on the Taiwan Stock Exchange. The results are consistent with the prediction of the catering theory in that managers choose a dividend policy to cater to the demand of investors. Design/methodology/approach Logistic regressions are used to test the catering theory hypothesis. Findings The results find that the firms distribute more stock dividends than other types of dividends when the dividend premium (DP) for stock dividends is positive. In contrast, firms shift from stock dividends to other types of dividends such as mixed dividends and cash dividends when the DP for stock dividends is negative. Originality/value The marginal contribution of this paper is that the firms change their dividend policy via DP to cater to the demand of investors.

Whether Cash Dividend Policy of Chinese Listed Companies Caters to Investors’ Preference

From the perspective of catering theory of dividends, this paper studies the relationship between cash dividend policy and investors’ preference, and also the relationship between cash dividend policy and enterprise features, making use of 2008-2014 data of listed companies in Shanghai and Shenzhen Exchanges. Our research discovers that rising corporate profitability and scale increase willingness to pay cash dividends of listed companies, whereas increasing investment opportunities significantly reduce the cash dividend payment. We create the variables of propensity to pay and dividend premium. The 2008-2014 dividend premium in Shanghai Exchange is negative and is negatively correlated with propensity to pay, showing that cash dividend policy still does not cater to investors’ preference after the completion of no-tradable shares reform.

Catering approach to the dividend payment policy on the Warsaw Stock Exchange

Dividend payment policy is a significant issue of neoclassical theories of finance. One of the concepts which poses a challenge tothe neoclassical approach to dividend payment policy is behavioural finance, including a catering theory of dividends. The aim of the article is to examine whether and to what extent the catering theory of dividends is reflected in the behaviour of shareholders and managers on the WSE. The opportunity to accomplish the aim of this paper was conditioned by the empirical verification of research hypothesis stipulating that the number of dividend payers increases if the dividend payers are priced by the capital market higher that the nonpayers. The empirical verification of hypothesis was conducted basing on the equal- and value-weighted dividend premium as well as dividend payment ratios. Moreover, descriptive statistics, Spearman's rank correlation coefficient, linear regression and coefficient of determination were used. The study was carried out on the basis of companies operating in the electromechanical industry sector that were listed on the WSE in the period between 1999-2013. The figures were taken from the Stock Exchange Yearbooks, Notoria Serwis database and GPWInfostrefa platform. The preliminary results of empirical research in the range of the catering theory of dividends allow to draw a conclusion that this theory may be useful in explaining the dividend policy conducted by electromechanical industry companies listed on the WSE.

The Jordanian Catering Theory of Dividends

This paper aims to investigate the validity of Catering Theory of dividend in the Jordanian market. Utilizing unbalanced pooled cross-sectional time series OLS regression model for all Amman Stock Exchange listed companies, after excluding the financial sector firms and non-consistently dividends-paying firms, for the time period of 1999–2013. Findings indicate that dividend premium, a proxy for Catering Theory, is affected by the explanatory variables. Therefore, the study concluded that Amman Stock Exchange listed companies counts for the investors require for dividends and react to this require in their dividend policy, and thus, confirming the validity of the Catering Theory of dividend in the Jordanian market.

The Dividend Premium in the CEE Stock Market

Abstract We investigate cross-sectional patterns related to dividends in the CEE stock market. We investigate a broad sample of 1153 companies from 11 countries in years 2002-2014. We use sorting and tests based on cross-sectional regression, and apply tests of monotonic relation. The principal findings are as follows. The high dividend stocks perform markedly better on a risk-adjusted basis, even after applying the classical three- and four factor models. This observation is supplemented with the evidence of monotonic relation: the higher dividend yields, the higher mean returns. However, the abnormal returns related to dividend yields are characteristic largely only for big- and midcaps. We find very weak evidence for the dividend premium across the micro stocks

The Role of Dividend Yields in Portfolio Optimization - Evidence from the CEE Market

We investigate cross-sectional patterns related to dividends in the CEE stock market. We investigate a broad sample of 1153 companies from 11 countries in years 2002-2014. We use sorting and tests based on cross-sectional regression, and apply tests of monotonic relation. The principal findings are as follows. The high dividend stocks perform markedly better on a risk-adjusted basis, even after applying the classical three- and four factor models. This observation is supplemented with the evidence of monotonic relation: the higher dividend yields, the higher mean returns. However, the abnormal returns related to dividend yields are characteristic largely only for big- and midcaps. We find very weak evidence for the dividend premium across the micro stocks.