Irrelevance Of Dividend Policy Research Articles

An evaluation of miller and Modigliani dividend policy irrelevance theory in selected firms in the Cameroon telecommunication industry

An evaluation of miller and Modigliani dividend policy irrelevance theory in selected firms in the Cameroon telecommunication industry

The Effect of Dividend Policy on Stock Market Price Volatility of Banks in the Gulf Cooperation Council (GCC) Markets:

This study examined the effect of dividend policy on the stock market price volatility of banks in the GCC markets. The study data were obtained from the annual financial reports and accounts of the selected sampled banks. The study used the panel data analysis fixed effect regression model. The findings revealed that dividend yield and dividends payout does not influence the market share price in the GCC market. Therefore, they do not affect the GCC banks’ market share price, thus the findings of the study support the dividend policy irrelevance theory. The study recommends that managers in the GCC banks should focus on and emphasize allocating more funds in investment rather than paying dividends. The findings have important practical implications for the policymakers on dividends in the GCC banks due to unstable and inconsistent trends of dividend payments and making it difficult for shareholders on dividend policy decisions predictions

The Determinants of Dividend Policy: A Comparison between Firms Listed on the Italian Stock Exchange and on the Warsaw Stock Exchange (2001–2014)

Several theories have been documented on the relevance and irrelevance of dividend policy. Many researchers continue to come up with different findings on the relevance ofdividend policy to the value of firms. In this paper, after an analysis of the different dividend pay-outs offered by Italian and Polish firms, we aim to understand the main factors thatdetermine the dividend policies of listed companies in Italy and Poland. In order to analyse this policy, we extract data from a wide sample of firms selected from the equity markets of the Italian and Polish stock exchanges. We use descriptive statistics and statistical regressions. The analysis is developed using the Statistical Package for Social Sciences (SPSS).
 The study reaches findings that are of great relevance to scholars and investors investigating dividend issues. The paper finds that there are many differences between Italian andPolish dividend policies; in particular, the dividend pay-out is mostly determined by the dividend yield and liquidity in Polish firms, while it is heavily influenced by profitabilityand leverage in Italian firms.

A Test of Miller and Modigliani Dividend Policy Irrelevance Theory in Nigerian Stock Market

This study empirically tests for the validity of Miller and Modigliani’s dividend irrelevance proposition in the Nigerian Stock Exchange (NSE). Secondary data were obtained from the Nigerian Stock Exchange fact book and firms’ annual audited financial statements for fifteen years (2001-2015). Mediation Analyses, was used to measure the direct and indirect effects of dividend on stock price. Correction of the anomalous use of current dividend and current earnings by the use of naive expectation of dividend and earnings revealed that the direct effect of expected dividend on share price is significant but the indirect effect of expected dividend on share price through earnings is not significant. The implication of these results is that expected dividend has its unique (direct) effect on share price beyond the effect on share price which it shares with expected earnings (indirect effect). This conclusion suggests that dividend policy is relevant in valuation of shares in NSE. It was therefore recommended that company management should treat dividend as an active corporate finance decision-making variable and should employ dividend in information signalling to capital market investors.

Impact of profitability on dividend policy of public and private sector bank in India

Several theories have been documented on the relevance and irrelevance of dividend policy. Many authors continue to come up with different findings from their studies on the relevance of dividend policy. The main thrust of this study is to find out the relationship between dividend per Share and banks return on net worth among public and private bank. The target population for this study was nationalised public bank and private bank of India. Random data sampling has been made in the study researcher randomly select Bank of Baroda from nationalised bank and Industrial Credit and Investment Corporation of India (ICICI) from private bank. The period of study would be five years from 2013 to 2017. The secondary data were obtained from the annual report of the related banks. Data analysed done with aid of statistical package for social science software. The study found a significant and positive relationship between return on net worth and dividend per share.

Analysis of Divided Policy and Its Impact on Shareholders Wealth Maximization in Nigerian Firms (A Study of Brewery Industry)

The study evaluated dividend policy and measured its impact on shareholders’ wealth maximization in Nigerian firms (a study of brewery industry). A cross-survey research design was adopted and secondary data extracted from the published annual reports of the firms studied. The statistical tool used was a multi-regression analysis and t-test for hypotheses testing and data analysis with the aid of SPSS version 20. The result in Guinness Nigeria Plc., indicated the irrelevance of dividend policy. From the result, the DPS, EPS and NAPS which were the explanatory variables, had no positive impact on the market value per share (MPS) both collectively and individually. The result from Nigeria Breweries Plc., proved dividend policy is relevant to an extent to which earnings per share and net asset per share are positively affected. The F-ratio was 0.000 which shows a significant positive impact on the MPS. The earnings per share and net asset per share were also significant except the dividend per share which had no impact on the market value per share. The implication is that the growth in stock prices is not always a function of dividend payment.

The Relationship Between Dividend Payments And Firm Performance: A Study Of Listed Companies In Morocco

Many theories have been documented on the relevance and irrelevance of dividend policy. Authors continue to come up with various conclusions with regard to dividend policy from their empirical studies. This paper sought to examine the relationship between dividend policies and financial performance of selected listed firms in Morocco. Data were sourced through secondary means from the annual reports of the sampled quoted firms and was analyzed using panel data regression model. Two models were developed in an attempt to provide a theoretical explanation on the birds-in-hand dividend relevance theory and the Modigliani and Miller’s (MM) dividend irrelevance theory. The findings indicated that Dividend policy is an important factor affecting firm performance. Their relationship was also strong and positive. This therefore showed that dividend policy was relevant. It can be concluded, based on the findings of this research that dividend policy is relevant and that managers should devote adequate time in designing a dividend policy that will enhance firm performance and therefore shareholder value. Management of companies should also invest in projects that give positive Net Present Values, thereby generating huge earnings, which can be partly used to pay dividends to their equity shareholders.

Transitory noise in reported earnings: Implications for forecasting and valuation

The paper considers a setting where the present value of expected dividends determines price and the information to forecast the future includes reported earnings. In the model, reported earnings have been garbled by transitory noise, which cannot be inferred. ‘True’, but now unobservable, earnings are permanent as in Ohlson (1992). The stage setting result shows that capitalized expected reported earnings for the next period equals price regardless of the noise. More subtle is the influence of current reported earnings on the forecast of future expected earnings and, relatedly, the valuation in terms of the history of data. Because of the noise term, Bayesian updating implies that the investor uses the entire earnings history to learn about permanent earnings and to forecast future expected reported earnings. Specifically, the main result shows that the next period’s expected earnings equal a weighted average of (i) current reported earnings and (ii) beginning-of-the-period expected earnings for the current period. This framework is often referred to as ‘adaptive expectations’ because there is gradual learning and updating. It depends critically on dividend policy irrelevance. The paper goes on to show that the weight on current earnings (term (i)) decreases as the noise increases. The model has testable implications for returns on earnings regressions and how one operationalizes value-relevance.

An empirical analysis of the dynamic relation among investment, earnings and dividends

Purpose – The purpose of this paper is to examine the dynamic relationships among investment, earnings and dividends for US firms. The sample period is 1950-2006. Design/methodology/approach – The authors use a firm-level vector auto-regression (VAR) framework to examine the firm-level dynamics among investment, earnings and dividends. The firm-level VAR yields Granger causality results, impulse response functions, and variance decompositions characterizing the dynamics of these three variables at the firm level. Findings – For the average firm in the sample, Miller and Modigliani dividend policy irrelevance is not supported, even in the long run; the shocks to dividends do have long-run consequences for investment and vice versa. Dividend changes are an ineffective signal of future earnings in both the short and long-term. The cost of an increased dividend is on average an immediate decrease of $3 in investment for every dollar increase in dividends and the effect is persistent up to six years after the increase in dividends. Research limitations/implications – The firm-level VAR used in the study requires that sample firms have long histories of investment, earnings and dividend data. The study addresses the interaction between dividends and investment and therefore necessitates examining dividend-paying firms. By the nature of the research question, the sample firms will not be representative in all respects to the universe of firms. The most striking difference between the sample and the universe of firms is firm size. As such, the study's conclusions are most applicable to larger, stable, dividend-paying firms. The study is also limited to dividend payout. Alternative payout policies, such as share repurchases, are not considered in this work. Practical implications – In theory, increases in dividends can signal higher future earnings; however, the evidence does not support this hypothesis. When capital markets are constrained or incomplete, increases in dividends come at a cost to investment. Firms should consider alternative methods of signaling future earnings that have less of an impact on investment. Investors should carefully evaluate the possible impact of an increase in dividends on investment and future earnings growth. Originality/value – This study is the first to examine the dynamics of earnings, dividends and investment at a firm level and over such a long sample period. By including the dynamics of earnings, the authors emphasize the potential opportunity costs that increasing dividends has on investment when capital markets are imperfect. The dynamic system also allows the authors to consider long-run effects as well as immediate responses to system shocks.

The Abnormal Earnings Growth Model, Two Exogenous Discount Rates, and Taxes

Abstract: In the abnormal earnings growth (AEG) valuation model of Ohlson and Juettner‐Nauroth (2005), there is one (constant) discount rate and no company or personal taxes. The parsimonious model specification focuses on bottom‐line earnings and growth in abnormal bottom‐line earnings and can hence be viewed as an equity‐level model. Disregarding taxes, we first extend this model to a firm‐level model based on operating earnings and growth in abnormal operating earnings, allowing for two exogenous discount rates: the required rate of return under all‐equity financing and the borrowing rate. Dividend policy irrelevance holds for this model. Using the firm‐level model as a stepping stone, a new equity‐level model is developed where dividends are discounted at a leverage‐dependent varying cost of equity capital. Dividend policy irrelevance holds for this model, too. Finally, the firm‐level and equity‐level models are extended to a situation with company and personal taxes. Dividend policy irrelevance then no longer holds, except in the tax‐neutrality case in Miller (1977).

Dividend policy: Reconciling DD with MM

Miller and Modigliani [1961. Dividend policy, growth and the valuation of shares. Journal of Business 34, 411–433] establish the irrelevance of dividend policy in a perfect capital market. DeAngelo and DeAngelo [2006. The irrelevance of the MM dividend irrelevance theorem. Journal of Financial Economics 79, 293–315.] suggest the Miller-Modigliani analysis is flawed and consequently their central conclusion is incorrect. The purpose of this paper is to show the vital role played by stock repurchases and agency costs in reconciling the two opposing views.

Understanding Stock Price Volatility: The Role of Earnings

In an efficient capital market, asset prices vary when investors change their expectations about cash flows, discount rates, or both. Using dividends to measure cash flows, previous research shows that the aggregate dividend-price ratio varies due to changes in expected discount rates (returns) rather than expected cash flows. In contrast, using accounting earnings instead of dividends as a measure of cash flows, this paper shows that as much as 70% of the variation in the dividend-price ratio can be explained by changes in expected earnings. Moreover, the paper documents a significant negative correlation between expected returns and expected earnings, suggesting that variations in a common factor to both may generate significant price volatility. The results are consistent with the dividend-policy irrelevance hypothesis.

Understanding Stock Price Volatility: The Role of Earnings

In an efficient capital market, asset prices vary when investors change their expectations about cash flows, discount rates, or both. Using dividends to measure cash flows, previous research shows that the aggregate dividend-price ratio varies due to changes in expected discount rates (returns) rather than expected cash flows. In contrast, using accounting earnings instead of dividends as a measure of cash flows, this paper shows that as much as 70% of the variation in the dividend-price ratio can be explained by changes in expected earnings. Moreover, the paper documents a significant negative correlation between expected returns and expected earnings, suggesting that variations in a common factor to both may generate significant price volatility. The results are consistent with the dividend-policy irrelevance hypothesis.

A simplified approach to demonstrating the irrelevance of dividend policy to the value of the firm

Miller and Modigliani () show the circumstances under which dividend policy does not affect the value of the firm. The debate over the impact of dividend policy on the value of the firm continues to this day. This study shows that an investor can create any pattern of dividends desired regardless of the dividend pattern paid by the company. That is, the investor can convert any existing dividend stream into any desired consumption pattern, in the presence of Miller and Modigliani (M&M) assumed financial markets. Thus, the value of the firm is not determined by the pattern of the dividend stream but by the present value of the future dividends, regardless of the pattern. Any pattern of dividend payments that the firm adopts can be changed by the investor to any other pattern. Thus, the M&M dividend irrelevance argument can be demonstrated using this simple approach.

What Determines the Aggregate Dividend-Price Ratio? Earnings Versus Dividends

In an efficient market, prices should vary only if investors change their expectations about cash flows, discount factors, or both. Prior research showed that dividend yield varies mostly due to variation in expected returns, and contains little information about cash flow. This literature concentrates on dividend growth variation as cash flow information. However, according to Miller and Modigliani (1961) with no taxes, given earnings, dividends are strictly a financing decision and should not affect prices. Consistent with the dividend-policy irrelevance hypothesis, this paper shows that variation in expected profitability growth explains as much as 70% of the variation in the dividend yield. Thus, the dividend yield contains information about cash flows in terms of earnings, not dividends. In addition, this paper finds evidence consistent with a permanent shift in the dividend yield in the 90s. Controlling for this permanent shift, the results indicate that the dividend yield has not lost its ability to predict returns.

The Market Valuation of Cash Dividends and the Tax Differential Theory of Dividend Policy: A Case Revisited

AbstractOne of the most controversial areas in finance concerns the relevance or irrelevance of dividend policy. Survey results reported by researchers indicate that corporate chief financial officers believe that dividend policy does affect stock prices. One factor that could cause dividend policy to matter is possible tax effects. However, although many maintain that tax treatment would favor low payout, Miller and Scholes argue that tax policy is irrelevant. The latest change in the tax code, which removed the lower capital gains tax rate, provides a unique opportunity to examine the relevance of tax policy alone. This study revisits the Citizens Utilities case, which was used by Long and Poterba. We conclude that the market for Citizens Utilities shares indicates that tax policy does influence value.

Empirical Evidence on Dividends as a Signal of Firm Value

The role of dividends in firm valuation continues to be a theoretical puzzle as well as an empirical obsession with economists. The pioneering work by Modigliani and Miller (MM) ([32], [29]) is the archetype of the theoretical dilemma. Whereas the authors proved convincingly the irrelevance of dividend policy to firm value within a perfect capital market, they tempered their irrelevance proposition with what is usually referred to as the “information content of dividends” (ICD) hypothesis. In a more scientific sense, this hypothesis should be labeled as a conjecture, since it is essentially an ad hoc observation that dividends may convey information to the capital market concerning a firm's future earnings potential. Even though the ICD hypothesis was not derived from a well-specified economic model, it has, nevertheless, been subjected to a plethora of empirical studies. In general, these studies have focused upon the precise influence of dividend changes upon a firm's common stock price. Overall, the results can be described as being supportive of the notion that stock price movements are positively correlated with cash dividend changes. This correlation, of course, is consistent with the ICD hypothesis.