Dividend Increases Research Articles

SHARE PRICE REACTION TO CASH DIVIDEND ANNOUNCEMENT: AN EVENT STUDY OF LISTED FIRMS IN KENYA

This study aimed to establish the effect of cash dividend announcement on share price reaction of the firms listed on the Nairobi Securities Exchange (NSE). This study used Event Study methodology with purely secondary drawn data from 24 firms listed on the NSE who meet the study threshold with an event window of eleven (11) days during the year 2008-2013. The study adopted the descriptive research design and sampling de-sign being purposive. STATA version SE12 was used to produce a descriptive analysis. The findings indicate that the share price reaction to dividend announcement is posi-tive for a dividend increase and negative for dividend decrease and constant for the constant dividend. The study therefore recommends that the effect of the dividend on the firm’s share price is very crucial for not only the literature but also for the regula-tion and supervision of the capital market and that further development of accounting standards, increased auditing skills, and advances in investor education will likely make dividends even more important in the future. Following these findings, it would be useful to also consider the following directions for future research on whether there is any joint effect of cash dividend, bonus issues, and right issues on the share price of firms listed on NSE.

Does Stock Liquidity Enhance or Impede Dividend Payout? Evidence From Australian Market

This paper investigates the impact of stock market liquidity on firms’ dividend payout policy in the Australian market. The finding suggests that stock liquidity positively relates to firm dividend payouts. The result holds after controlling for different model estimations and different measures of stock liquidity/dividend. To address endogeneity issue, I use the removal of broker identities by the ASX in 2005 as an exogenous shock to stock liquidity. The result suggests that there is an increase in stock liquidity around this shock, leading to an increase in firm dividend, suggesting a causal effect of stock liquidity on firm dividend. I further document that stock liquidity enhances firm dividend through reducing cash-flow volatility and the effect of stock liquidity on firm dividend is weaker for firms reporting imputation tax credit.

Firm location and corporate dividend policy: evidence from China

ABSTRACTWe investigate the relation between a firm’s geographic location and its dividend policy. We find that firms headquartered in the National Central Cities, cities with high-speed rail (HSR), and with shorter distance to the nearest National Central City pay higher dividends. We find evidence that attributes the higher dividends to an increase in the number of analysts’ site visits, greater information transparency, and a reduction in financial constraints. Finally, the observed increases in dividends tend to be stronger for firms that benefit the most from improvements in the information environment after the arrival of HSR, such as firms located in regions without regional airports, firms located in areas with a lower regional gross domestic product, firms located a greater distance to the closest National Central City, and firms that are smaller, state-owned, have a shorter listing history in the exchanges, and have a more concentrated ownership.

PENGARUH POTENSI KEBANGKRUTAN, STRATEGI MANAJEMEN LABA DAN RESIKO INVESTASI TERHADAP VOLUME PERDAGANGAN SAHAM PERUSAHAAN YANG TERDAFTAR DI BURSA EFEK INDONESIA

Market reactions as measured by Stock Trading Volume are often investigated due to the publication of financial statements (profit publications), dividend distribution announcements, announcement of dividend increases, announcement of changes in directors, or Indonesian macro conditions which theoretically have the possibility of influencing the volume of stock trading. The market reaction is measured by the Stock Trading Volume starting from one day after the information is announced until the next few days, even until the next few months. The purpose of this study is to determine the extent of the effect of bankruptcy potential, profit management strategy and investment risk simultaneously on the stock trading volume of companies listed on the Indonesia Stock Exchange.This study uses quantitative methods. The population to be studied in writing scientific papers are all LQ45 Index companies listed on the Indonesia Stock Exchange. The sample in this study were all LQ-45 stock indices that persisted in the 2009-2011 period. The results of multiple linear regression analysis show that partially the variable (H1) potential for bankruptcy has a significant effect on the volume of stock trading. Variable (H2) The earnings management strategy partially does not have a significant effect on the volume of stock trading. Variable (H3) Investment risk partially has a significant effect on stock trading volume. Simultaneously (H4) the potential for bankruptcy, earnings management strategies and investment risk have a significant effect on the volume of stock trading.

Are pension contributions a threat to shareholder payouts?

UK companies have been making large contributions to reduce the deficits of their pension funds, and are believed to fund such contributions in part by reducing dividends. Using data from 2003 to 16, we find little evidence that large deficit-reduction contributions are associated with reductions in regular dividends, though we find some restraint in dividend increases and total payout. Most companies make large contributions when they have healthy cash flows and strong profitability, or inflows from disposals of assets. This suggests that the Pensions Regulator allows companies flexibility regarding the timing of contributions.

Pengumuman Dividen Tunai terhadap Return Saham

Penelitian ini bertujuan untuk menguji kandungan informasi dari pengumuman pembagian dividen yang dapat tercermin dari abnormal return yang timbul akibat adanya reaksi pasar. Pengumuman pembagian dividen ini dibagi menjadi dividen naik dan dividen turun. Reaksi pasar dapat diukur dengan menggunakan abnormal return sebagai nilai perubahan harga. Penelitian ini menggunakan pendekatan event study dan dilakukan pengamatan terhadap abnormal return selama 21 hari yaitu 10 hari sebelum pengumuman,1 hari pada saat pengumuman dan 10 hari sesudah pengumuman. Penelitian ini menggunakan data sekunder yang diperoleh dari Bursa Efek Indonesia (BEI). Penelitian ini menggunakan sampel sebanyak 43 perusahaan yang terdiri dari 26 perusahaan yang membayar dividen tunai naik dan 17 perusahaan yang membayar dividen tunai turun. Sampel diambil dengan menggunakan metode purposive sampling. Data yang digunakan dalam penelitian ini meliputi data perusahaan yang membayarkan dividen tunai yang terdaftar dalam kelompok saham LQ 45 periode Februari 2014-Januari 2015. Untuk menghitung return ekspektasian menggunakan Market Adjusted Model. Alat uji statistik yang digunakan adalah one sample t-test, paired sample t-test, dan independent sample t-test.
 Hasil dari penelitian ini menunjukkan bahwa (1) Terdapat abnormal return yang signifikan dengan adanya pengumuman dividen naik pada t-7,t-2,dan t0 yang semuanya bereaksi positif sedangkan untuk dividen turun juga terdapat abnormal return yang signifikan pada t-7,t0,t+3 yang semuanya bereaksi negatif dengan tingkat signifikansi 10%. (2) Terdapat perbedaan abnormal return sebelum dan sesudah pengumuman dividen untuk perusahaan yang mengumumkan dividen naik dan tidak terdapat perbedaan abnormal return sebelum dan sesudah pengumuman dividen untuk perusahaan yang mengumumkan dividen turun. (3) Terdapat perbedaan abnormal return sebelum pengumuman dividen untuk perusahaan yang mengumumkan dividen naik dan perusahaan yang mengumumkan dividen turun dan (4) Tidak terdapat perbedaan abnormal return sesudah pengumuman dividen untuk perusahaan yang mengumumkan dividen naik dan perusahaan yang mengumumkan dividen turun. Jadi dapat disimpulkan investor bereaksi pada saat sebelum pengumuman dividen,bereaksi positif untuk dividen naik dan bereaksi negatif untuk dividen turun.

Stock market reaction to cash dividends: evidence from the Nigerian stock market

PurposeVery little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this paper is, therefore, to provide empirical evidence on this issue by investigating the stock price reaction to cash dividends by companies listed on the Nigerian Stock Exchange.Design/methodology/approachStandard event study methodology, using the market model, is employed to determine the abnormal returns surrounding the cash dividend announcement date. Abnormal returns are also calculated employing the market-adjusted return model as a robustness check and to test the sensitivity of the results to β estimation. The authors also examine the interaction between cash dividends and earnings by estimating a regression model where announcement abnormal returns are a function of both dividend changes and earnings changes relative to stock price.FindingsThe study find support for the signaling hypothesis: dividend increases are associated with positive stock price reaction, while dividend decreases are associated with negative stock price reaction. Companies that do not change their dividends experience insignificant positive abnormal returns. The results also suggest that both dividends and earnings are informative, but dividends contain information beyond that contained in earnings.Research limitations/implicationsThe sample for the study includes only cash dividend announcements occurring without other corporate events (such as interim dividends, stock splits, stock dividends, and mergers and acquisitions) during the event study period. The small firm-year observations may limit the validity of generalizations from these conclusions.Practical implicationsThe findings are useful to researchers, practitioners and investors interested in companies listed on the Nigerian stock market for their proper strategic decision making. In particular, the results can be used to encourage transparency and good governance practices in the Nigerian stock market.Originality/valueThis paper adds to the very limited research on the stock market reaction to cash dividend announcements in Nigeria; it is the first of its kind employing a unique cash dividends data.

Case Study: The Development of Shareholder Activism in Japan since the Lehman Shock

After booming during the beginning of the 21st century and then fading after the Murakami Fund incident and Lehman shock, shareholder activism in Japan has begun to recover. After analyzing some investment cases of major players in Japan after 2008, I find that the investment strategy of activists in Japan can be summarized as targeting companies with cheap stock prices, deep pockets, solid performance, and a vulnerable capital policy. Compared with the US market, the main proposals of activists in Japan are share buybacks and dividend increases, and there is less concern with management issues. The main exit approaches are either to answer repurchases and takeover bids or exit through the open market. M&A as an exit approach is seldom used. The data indicate that the capital returns of the primary activist players in the Japanese market are promising and stable.

Save the Buyback, Save Jobs

In response to a recent New York Times op‐ed by Senators Schumer and Sanders deploring the effects of stock buybacks on workers and the economy, the authors explain the role of buybacks in increasing corporate productivity and in recycling “excess capital” from mature companies with limited growth and employment opportunities to the next generation of Apples and Amazons. Some companies, as Schumer and Sanders charge, are guilty of repurchasing shares in the name of “shareholder value maximization” instead of pursuing job‐creating investments. But as the authors argue, well‐run companies increase shareholder value not by boosting EPS through buybacks, but mainly by earning competitive returns on capital and investing in their long‐run “earnings power.” And by paying out capital they have no productive uses for, such companies give their own shareholders the opportunity to reinvest in other companies with promising prospects for growth and jobs.But the authors go on to note the tendency of companies to buy back shares not when their stock prices are low, but instead when the companies are flush with cash and nearer the top than the bottom of the business cycle. The result of this tendency, as research by Fortuna Advisors (the authors' firm) shows, is that fully three quarters of companies doing large buybacks during the period 2013‐2017 failed to produce an adequate “Buyback ROI,” a metric developed by Fortuna that indicates management's effectiveness in “timing” its stock repurchases.Given the usefulness of buybacks in recycling capital, the authors conclude that the most reliable solution to the corporate short termism and underinvestment problem is for companies to adopt better financial performance measures—including Buyback ROI—to guide their capital allocation. And when management determines that it has significantly more capital than value‐adding investments, but wants to avoid committing to unsustainable dividend increases, it should consider buybacks—but only if management is convinced that its stock price has not outpaced performance.

For banks, fair value adjustments do influence dividend policy

5Most researchers who investigate the interplay between fair value accounting (FVA) and the financial crisis look at the time period during the crisis. This paper investigates a potential role for FVA prior to the crisis: If FVA led to increased accounting profits with the recognition of transitory gains through profit and loss during the boom, and if those increased profits provided the rationale for increased dividends, then bank capital became riskier prior to the crisis, and this would have made the system more prone to failure. A study by Goncharov and Van Triest (2011) found no empirical support for an increase in dividends in response to unrealised positive fair value adjustments to income. In contrast, when the setting is limited to only South African banks, this paper finds that South African banks did pay dividends from unrealised transitory gains. This finding is based on a combination of three strands of evidence: a panel regression of the annual dividends declared by the large South African universal banks that showed that those banks probably ignored the unrealised nature of FVA profits when dividends were determined; monthly data from the total South African bank system in a co-integrated regression that showed that unrealised fair value profits from the banking book raised the average level of bank profits materially; and simple descriptive statistics on distributions that showed that South African banks distributed a greater proportion of profits during the critical period of 2004 to 2008 when unrealised fair value profits from the banking book raised the level of bank profits. The finding that South African banks did pay dividends from unrealised transitory gains was also confirmed by bank representatives and the post-financial crisis disclosure of one of the South African banks.

When are dividend increases bad for corporate bonds?

AbstractEmploying 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. On average, bond price reaction is in the same direction as dividend changes, which supports the hypothesis that dividend changes signal future firm performance. However, the price reaction varies significantly in the spectrum of bond's risk. Importantly, we document that some bondholders react negatively to unexpected dividend increases, indicating a wealth transfer effect. Such wealth transfer effect is most likely to occur in very high risk bond approaching maturity issued by firms with a low level of cash and incorporated outside Delaware.

The Effect of Double Taxation Treaties on Tax Relief and Foreign Firms’ Investment Flows (FDI): Evidence from Pakistan

To increase inward foreign investment, policy makers increasingly resort to the ratification of double taxation treaties (DTTs). However, the effectiveness of DTTs in inducing higher FDI is still open to debate, as the empirical evidence of existing studies is anything but conclusive. This study analyzed the benefits of DTT to firms in terms of profits from dividend and capital gains, and whether or not these benefits lead to increase in foreign investment inflows. In contrast to earlier approaches, we used a firm specific dataset of bilateral FDI stocks. We also calculated the tax relief obtained by each firm due to DTT. And investigate whether these relief were significant factor in attracting FDI by those firms. We collected the consolidated tax data for a sample of 50 entities residing in Non-resident countries for the period of 2013 to 2017. 28 of them have Active income and 22 were Non-Active. Descriptive statistics, Correlation and regression test were used for the analysis of the data. Our results indicate that tax relief from dividend and capital gains due to DTTs is a significant factors in attracting FDI stocks. Moreover, increase in dividend and capital gain tax also seems to positively affect FDI. Furthermore, the relationship remained unchanged for active income and Non-Active income categories. Hence, in context of Pakistan, DTT seems to have a positive effect on FDI.

Factors affecting price to earnings ratio (P/E): Evidence from the emerging market

The purpose of this study is to investigate the factors that have an impact on price to earnings (P/E) ratios in Jordanian industrial public shareholding companies listed on the Amman Stock Exchange and to help investors determine their investment value by using P/E ratio. The study also aims to help stock issuers with pricing initial public offers using a more scientific model base. In Jordan, only few studies have investigated the factors that affect the P/E ratio in the industrial sector. Therefore, this study contributes significantly to the limited literature on this topic in relation to developing countries. For this purpose, we used a quantitative approach to study data for the whole study population, which consists of sixty firms, during the period 2011–2016. Data on variables were collected over the 2011–2016 period from annual financial reports of industrial companies; market capitalization data were collected from the Amman Stock Exchange; and interest rate data were collected from the Central Bank of Jordan. An empirical study was conducted using panel data regression analyses random effects model to examine the effects of dividend payout ratio, market capitalization (which is a proxy for firm size), leverage ratio, interest rate, and annual growth rate of companies’ net income (a proxy for growth rate) on P/E ratio. This study found that there is a significant positive impact of dividend payout ratio and size on P/E ratio, whereas leverage, earnings growth, and interest rate have no impact on P/E ratio. These results imply that an increase in dividends and large firm size is required to attract investors’ attention and increase their confidence about choosing such firms in their portfolios.

Corporate dividend policy practices: perceptions of financial officers of listed companies in Colombo Stock Exchange

Main objective of this survey was to find out the perceptions of financial officers on dividend policy practices in Sri Lanka. Current survey further extended to examine whether firm characteristics influence the corporate dividend policy practices. Stratified random sampling was used to select the 150 participants from 20 different sectors in Colombo Stock Exchange (CSE). Primary survey was carried out to collect the data using structured questionnaire in 2017 and response rate was 20%. Cronbach' alpha was used to evaluate the reliability of the collected data. Data were analyzed by applying mean, percentage analysis and Chi-square test. Results of the survey revealed that financial managers believe that dividend payout ratio affects the market value of the firm, company willing to rescind dividend increase in the event of growth opportunities, company's dividend change follows shift in long term sustainable earnings, company focuses more on absolute level of dividends than dividend changes and dividends provide signaling mechanism of the future prospects of the firm. Therefore, it was observed from the perceptions of finance professionals that dividend decisions is one of the factor affect the market value of the firm. Results of the survey further expressed that the firms characteristics: market capitalization of the firms, types of industry, educational qualification and experience of financial officers are influencing the use of certain dividend policy practices in selected firms in this survey. The survey suggested that the dividend policy is considered as very important one to the financial officers and the potential investors as it is affecting the market value of the firms. Present survey just focused on beliefs of management on dividend policy rather studying the gap between beliefs on dividend policy of management and practical application on dividend policy. Further, it should be studied that how financial officers are working with the dividend policy in order to maximize the shareholders' wealth.

Price inversion and post lock-up period returns on private investments in public equity in China: An interest transfer perspective

This paper documents an anomaly in privately-placed stock returns in China and provides an explanation based on deliberate interest transfers. Using a sample of private investments in public equity (PIPEs) with lock-up periods ending between 2007 and 2015, we find that stocks with price inversion (unlock-date price lower than the issuing price) generate higher short-term returns post lock-up period than other stocks, and the greater the degree of price inversion, the better the short-term returns. This anomaly cannot be explained by the effects of price reversal, investors' under-reaction to companies' prospects, or improved governance after PIPEs. Rather, it reflects the interests transferred by issuing firms to participating investors via means including aggressive earnings management and dividend increase, given the unique regulations on PIPEs in China. Interest transfer is particularly pronounced if local investors participate in a PIPE, but sound corporate governance can restrain it.

The dividend payout policy and R&D for loss firms: evidence from South Korea

ABSTRACTThis paper examines the effect of research and development (R&D) on dividend payments for loss firms. Even though a firm’s positive earnings is the main factor of dividend payout policy, earnings is not the main factor for loss firms’ dividend policy. An increase in dividends affects a firm’s liquidity and may cause a loss of profitable investment opportunities, thus paying dividends when a firm has negative earnings can be quite costly. Given the increase of loss firms with dividend payouts in Korea, this paper explores whether R&D is crucial for paying dividends among loss firms. We expect that loss firms with high R&D intensity are more likely to pay dividends to signal their future prospects. Using the sample from South Korean firms over 2002–2013, we find evidence that is consistent with our prediction. It suggests that loss firms with good prospects have incentives to signal their future performance using dividend payouts, and R&D is an important factor in determining dividend payout for loss firms.

Practical Applications of Reinvestment and Global Stock Returns

Practical Applications Summary In Reinvestment and Global Stock Returns, from the Summer 2018 issue of The Journal of Investing, Haim A. Mozes studies an apparent contradiction between economic theory and observed reality. In theory, companies should retain their earnings for as long as the rate of return on their investments is greater than their cost of capital, and if their return on investment drops below their cost of capital, they should return capital to their investors. This suggests that dividend increases, which hand more capital back to investors, should be considered bad news, because they signal expected lower returns. But the reality is different-stock markets have a well-documented tendency to view dividend increases as good news, with stock prices rising in response. Mozes (a professor of finance at Fordham University’s Gabelli School of Business in New York) studies the relationship between dividend rate increases and stock market returns at the level of countries rather than individual companies, comparing the experience of 20 national stock markets during the period 2000 to 2016. He finds that the conventional theory does in fact hold at this level of analysis: When dividend payout rates increase in aggregate for an entire country’s market, stock market returns subsequently decline. This has valuable practical implications for investors considering global investing portfolios.

The Importance of Being Prudent: Leverage and the Informational Content of Dividends

This paper studies how the informational content of dividends is affected by leverage. While higher dividends convey good news at low levels of leverage, dividends become a bad signal when leverage is high. Quantitatively, a dividend increase is predicted to have a positive stock price reaction for the median public U.S. firm, but the effect is reversed at higher levels of leverage. The same switch occurs for other corporate actions, including debt buybacks, debt issuance and risk taking. The results highlight the importance of studying the various determinants of firms’ financial decisions jointly.

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.

How Does Asymmetric Information Affect Catering Behavior?

ABSTRACTThis study examines the association between information asymmetry and payout policy, and how asymmetric information affects catering behavior. Using forecast error and forecast dispersion as information asymmetry variables, this study finds that the more information asymmetry the firms face, the less likely they will increase dividends. Meanwhile, the effects of information asymmetry dominate over those of catering incentives for managers to decide dividend policy. Finally, our empirical results demonstrate that the signaling theory holds when dividend yield is high or market underestimates the EPS of firms. In addition, companies use share repurchases as a substitute for dividend increases, and take retained earnings into account when making dividend policies.