Optimal Dividend Policy Research Articles

An approach for regime-switching stochastic control problems with memory and terminal conditions

In this research article, we focus on a stochastic optimal control problem with two types of terminal constraints. These specific conditions provide real-valued and stochastic Lagrange multipliers. Our model evolves according to a Markov regime-switching jump diffusion model with memory. In this context, the memory is represented by a Stochastic Differential Delay Equation. We present two theorems for each constraint within the general formulation of stochastic optimal control theory in a Lagrangian environment. We approach to this task from a theoretical perspective and provide mild technical assumptions, which make our theorems applicable for a broad class of stochastic control problems as well as for a wide range of disciplines such as engineering, biology, operations research, medicine, computer science and economics. In this work, we apply Stochastic Maximum Principle to demonstrate an optimal dividend policy corresponding to a time-delayed wealth process of a company. Moreover, we determine the real-valued Lagrange multiplier of this control problem explicitly.

CORPORATE DIVIDEND DECISION AND FIRM VALUE IN NIGERIA

Corporate dividend decisions play a significant role in managerial decisions, and is often considered as the fulcrum of financial management decisions. While making these decisions, corporate finance is single-minded about maximizing the value of the firm. But the raging issue has been the lack of consensus on the effect of dividend policy on firm. This study therefore undertakes a comprehensive review of dividend policy theories and empirical studies on dividend policy in relation to firm value, with particular focus on Nigeria. The paper adopts the exploratory research approach using secondary data sources involving extensive review of relevant articles, theoretical and empirical studies, as well as other relevant materials. The paper established that, despite the raging theoretical controversies and contradictions of past empirical findings, there is unanimity among many researchers that corporate dividend decisions exert significant influence on firm value- a position which validates the arguments in favour of the relevance of dividends policy in determining firm value. The paper therefore recommends that finance managers of firms should aim at finding an optimal dividend policy, which is the one that maximizes the company stock price that leads to the maximization of firm value.

Optimal dividend policy with self-exciting claims in the Gamma–Omega model

In this paper, we consider the optimal dividend policy for an insurance company under a contagious insurance market, where the occurrence of a claim can trigger sequent claims. This clustering effect is modelled by a self-exciting Hawkes process where the intensity of claims depends on its historical path. In addition, we include the concept of bankruptcy to allow the insurance company to operate with a temporary negative surplus. The objective of the management is to obtain the optimal dividend strategy that maximises the expected discounted dividend payments until bankruptcy. The Hamilton–Jacobi–Bellman variational inequalities (HJBVIs) are derived rigorously. When claim sizes follow exponential distributions and the bankruptcy rate is a positive constant, the value function can be obtained based on the Gerber–Shiu penalty function and the optimal dividend barrier can be solved numerically. Finally, numerical examples are demonstrated to show the impact of key parameters on the optimal dividend strategy.

Optimal dividend and risk control strategies for an insurer when there are multiple reinsurers with different risk attitudes

Suppose that insurer can control dividend, refinancing and reinsurance strategies dynamically. Different from the past, there are multiple reinsurers rather than sole reinsurer in the market. The insurer aim at finding the optimal strategies for maximizing the company’s value. It illustrates that refinancing can be considered iff the company has strong profitability; It should reduce reinsurance purchase when the surplus increases. The amount of risk ceded to the reinsurer depends on its risk attitude. The optimal dividend policy is of barrier type when the dividend rate is unbounded and is of threshold type when the dividend rate is bounded.

The Effect of Dividend Policy and Environmental Social Governance on Company Performance with Moderation of Good Corporate Governance in IDX LQ45 Companies

This study aims to analyze the effect of dividend policy and environmental social governance (ESG) on company performance as measured by Tobins'q and stock prices with moderation of Good Corporate Governance (GCG) in companies listed on the LQ45 Index of the Indonesia Stock Exchange (IDX) for the period 2019-2023. The research sample using purposive sampling method obtained 20 companies that entered the criteria to be sampled. The results showed that dividend policy has no effect on company performance as measured by tobin's q and stock price, ESG has no effect on company performance as measured by tobin's q and stock price, financial leverage has no effect on company performance as measured by tobin's q, but financial leverage has an influence with a negative relationship direction on company performance as measured by stock price, company size has a negative and significant effect on company performance as measured by tobin's q, but company size has a positive influence on company performance as measured by tobin's q, GCG moderation proves to have no effect between dividend policy on company performance as measured by Tobin's q, but GCG moderation proves to have a negative effect between dividend policy on company performance as measured by stock prices, GCG moderation has a negative effect between ESG on company performance as measured by Tobins' q, but GCG moderation proves to have no effect between ESG on company performance as measured by stock prices. This research has important implications for companies and investors. For companies, it is important to implement an optimal dividend policy and commit to ESG principles to improve company performance. For investors, these findings can help in making investment decisions by considering factors such as dividend policy, ESG, and corporate governance.

Pengaruh Leverage dan Likuiditas Terhadap Kebijakan Dividen Pada Perusahaan Manufaktur di Bursa Efek Indonesia Tahun 2020 – 2023

This research is important to provide valuable insight for companies in determining the optimal dividend policy and attracting investor interest. Hopefully, this research can make a significant empirical and theoretical contribution regarding the effect of leverage and liquidity on dividend policy in manufacturing companies on the IDX for the 2020-2023 period and can be a reference for companies in making decisions. This study uses some independent variables, namely Leverage and Liquidity. The dependent variable is the Dividend Policy which uses a purposive sampling method on one hundred samples of manufacturing companies on the IDX. In this case, H1 is accepted, leverage has a significant effect on dividend policy with a path coefficient (-0.055) and p-value (0.000 < 0.005). Then H2 is accepted, liquidity has a significant impact on dividend policy with path coefficient (0.109) and p-value (0.050 < 0.005). In this study, the data collected by researchers is quite limited, so future researchers are expected to develop data updates from previous studies where future researchers can find other variables that can affect dividend policy.

Changing dividend payout behavior and predicting dividend policy in emerging markets: Evidence from India

Dividends have become increasingly important for capital market participants to achieve financial goals in the rapidly changing Indian economy. This study aims to simplify the evolving Indian dividend puzzle by analyzing the dividend trends, examining the evolving nature of firm and macroeconomic determinants of dividends, and developing a dividend policy prediction model. Dividend trends of 3,162 non-financial listed Indian firms from 2006–2022 are studied to gain insights about the Indian dividend puzzle. Regularization and logit models are used to explore the nature of impact of important dividend determinants. Data-mining methods are employed to build a robust model for dividend policy prediction. Trend analysis reveals a decline in the quantum of dividends and proportion of dividend-paying firms with approximately 90% of the dividend-payers belonging to the manufacturing and service sector. Further findings suggest that size, age, maturity, profitability, past dividends, earnings, and bank monitoring of firms had a favorable impact on the likelihood of dividend payments. Macroeconomic indicators such as GDP growth rate, repo rate, percentage change in equity issues, listings, gross fixed assets formation also had a positive impact. The annual percentage change in debt issues and new project announcements at the macro level with investment prospects at firm level negatively impacted dividends. Dividend prediction model based on the random forest technique achieved the highest prediction accuracy of 90.77% and 77.31% under binomial and multi-class situations. These findings are expected to help corporate executives, portfolio managers and investors proactively design optimal dividend policies and formulate their investment strategies.

The cost of equity to earnings yield differential and dividend policy

PurposeThe authors measure the cost of equity to earnings yield differential for a sample of 2,035 non-financial firms. In a series of Logit and Tobit regressions, the authors examine if the cost of equity to earnings yield differential is related to dividend policy in the manner predicted by agency theory.Design/methodology/approachAgency theory says a firm's optimal dividend policy is partially determined by the relationship between the earnings yield and the cost of equity capital. When the cost of equity is higher (lower) than the earnings yield, firms are motivated to (not) pay dividends as this reduces the cost of capital and holding other things constant, increases corporate valuations. The authors test whether managers set dividend policies to maximize the value of the firm.FindingsThe study’s findings show that when the cost of equity is higher (lower) than earnings yield, firms are more (less) likely to be dividend payers and the payouts are higher (lower). The results are robust to the inclusion of share repurchases as an alternative to cash distributions. The study’s findings support the cost of equity hypothesis and are consistent with alternative dividend theories.Originality/valueThe study’s findings support the cost of equity hypothesis and are consistent with alternative dividend theories. To the authors’ knowledge, this is the first paper testing the cost of equity hypothesis.

Pengaruh Rasio Keuangan Terhadap Kinerja Keuangan Perusahaan yang Terdaftar di Bursa Efek Indonesia (Sub Sektor Makanan dan Minuman Periode 2015-2020)

Tighter competition, cannibalism between companies, inflation, faster technological developments, growing attention to environmental factors, economic crises, and social responsibility force financial managers to act as general managers. Financial managers must be able to translate strategic objectives in determining the financial performance of a company. Financial managers must be able to make decisions in achieving the optimal level of profit. Efficiency in financing investment will be reflected in the acquisition of data with minimal costs, while the optimal dividend policy will be reflected in increasing prosperity and company achievement. The purpose of this study is to empirically prove the effect of financial ratios (Investment, Growth, Liquidity and Dividends) on company's financial performance. This research is a quantitative research using secondary data obtained from the company's annual report. The population in this study is the food and beverage sub-sector manufacturing companies listed on the Indonesia Stock Exchange in the 2015-2020 period as many as 15 companies. The sampling technique in this study used purposive sampling. There are 11 companies that meet the criteria in this study. The data analysis technique used is multiple linear regression analysis using SPSS 17.0 for Windows. The results of this study indicate that partially the ratio of investment, growth and dividends has a positive and significant influence on the company's financial performance and liquidity does not have a positive and significant effect on the company's financial performance results.

A Prudential Paradox: The Signal in (Not) Restricting Bank Dividends

AbstractBy restricting dividends in the weakest banks, prudential regulators counterintuitively induce more capital payouts in marginal banks. The potential for bank runs exacerbates the incentive to signal strength through dividend payments. Regulatory restrictions on those payments can be used to achieve the first‐best outcome, but only if the prevailing capital requirements are sufficiently high. In a crisis, the optimal dividend policy is more restrictive, since it allows the weak but solvent banks to pool with the strong. Finally, we show that the optimal release of regulatory bank information depends critically on the regulator's information and dividend restriction policies.

COVID-19 Pandemic, Dividend Policy, and Stock Market Reaction: Evidence from the Manufacturing Companies in Indonesia

This study aimed to examine the impact of the COVID-19 crisis on the dividend policy of Indonesia’s manufacturing companies and the stock market reaction to this corporate action in 2020. The purposive sampling technique was used to select 87 manufacturing companies to examine the impact of the crisis on dividend policy from 2014 to 2020, while the market reaction was tested on 42 companies. Data were analyzed using the dynamic panel data regression with the SYS-GMM estimation method, as well as the one sample T-test and the Wilcoxon sign-ranked tests. The findings showed that Indonesia’s manufacturing companies formulated a positive dividend policy during the COVID-19 pandemic. The stock market reaction to this corporate action was weak, meaning it became sluggish during a crisis. These results indicate that the effort to signal the market positively was ineffective. Therefore, companies must formulate corporate actions or other managerial policies to reduce capital market sluggishness in crisis. They should also implement an optimal dividend policy to increase their value to contribute to the Indonesian economy, specifically in crisis conditions, such as the COVID-19 pandemic.

Optimal dividends under Markov-modulated bankruptcy level

This paper proposes and studies an optimal dividend problem in which a two-state regime-switching environment affects the dynamics of the company's cash surplus and, as a novel feature, also the bankruptcy level. The aim is to maximize the total expected profits from dividends until bankruptcy. The company's optimal dividend payout is therefore influenced by four factors simultaneously: Brownian fluctuations in the cash surplus, as well as regime changes in drift, volatility and bankruptcy levels. In particular, the average profitability can assume different signs in the two regimes. We find a rich structure of the optimal strategy, which, depending on the interaction of the model's parameters, can be either of barrier-type or of liquidation-barrier type. Furthermore, we provide explicit expressions of the optimal policies and value functions. Finally, we complement our theoretical results by a detailed numerical study, where also a thorough analysis of the sensitivities of the optimal dividend policy with respect to the problem's parameters is performed.

The COVID-19 Pandemic Impact on Corporate Dividend Policy of Sustainable and Responsible Investment in Indonesia: Static and Dynamic Panel Data Model Comparison

This research investigates the impact of crisis due to the COVID-19 pandemic on the dividend policy of green index companies in Indonesia, namely the Sustainable and Responsible Investment (SRI) by Biodiversity (KEHATI) Foundation, or SRI-KEHATI indexed companies. The purposive sampling technique was used to collect data from companies listed from 2014 to 2020, using static and dynamic panel data models. From the several panel data models tested, the static panel data regression with random effects model (REM) and fixed effect model (FEM) uses the least square dummy variable-robust standard error (LSDV-RSE) technique are the best econometric models feasible. The system generalized method of moments (SYS-GMM) is used as a suitable econometric model with a robustness test used to determine static panel data regression. It is reported that SRI-KEHATI indexed companies tend to distribute dividends positively during this crisis, and is also statistically proven robust. This gives a positive signal to the capital market concerning the sluggish trading activity. The market reaction test, using two-approaches, showed that this business did not provide a positive reaction to the capital market, which turned out to be pessimistic. Furthermore, profitability and financial leverage have a robust effect, while dividends from the previous year affect dividend policy on the static panel data model, and firm size affect dividend policy on SYS-GMM. Predictors that proved influential with a direction not in line with the hypothesis were investment opportunities on REM and SYS-GMM, and firm age on SYS-GMM. The parameter estimation that passes the model specification test is feasible, whiles the biased and inconsistency of parameter estimation due to the alleged correlation between ui,t and PYDi,t failed to occur in static panel data regression. The endogeneity issue was resolved by dynamic panel data regression with the strongest corrective effect. This research can be used as a reference for investors to obtain optimal returns on green index companies in the country. An optimal dividend policy can increase the value of the SRI-KEHATI indexed companies; therefore, it can contribute optimally to sustainability and responsibility for social and environmental aspects.

Liquid Stock and Dividend Payment of Non-financial Quoted Companies in Nigeria

Payment of dividends among firms in Nigeria has become irregular and setting an optimal dividend policy has become an herculean issue. Studies in developed countries indicated that stock liquidity influences dividend payout and this has not been well established in Nigeria. Hence, this study examined the effect of liquid stock on dividend payment of fifty (50) non-financial quoted companies in Nigeria between 2012 and 2019. The study employed secondary source of data collection and analysis was done using descriptive statistics and inferential statistics. The study model expressed the effect of Turnover Ratio, Firm Size, Financial Leverage, Cash Holding and Investment Opportunity on Dividend Payment Ratio using OLS Panel Regression. The results based on the random effect model showed that turnover ratio (TOR) which is a proxy for liquid stock accounts for a significant positive influence on dividend payment while other variables showed negative influence except cash and cash equivalent. Based on the above findings, the study concluded that for most of the companies operating in the non-financial sector of the Nigerian economy, the influence of liquid stock on the amount paid as dividend is positive and significant and those firms with more liquid stocks pay higher amount of dividend than those with less liquid stocks.

Legal Aspects of Dividend Payment in a Limited Liability Company

The objective of the study was to identify forms, main objectives and regulatory measures that can improve the development of the legal regulation of dividend payments in a limited liability company. The study involved three methods: direct observation, comparison, and analysis of the content of documents that provide legal regulation of dividend payments at the state and interstate levels. Eight important factors influencing dividend policy are presented. The success of business activity depends directly on the regularity of profits and the amount of capital of the company, while it is inversely dependent on the regularity and size of dividends. It is concluded that the type and form of dividend policy is partly governed by the rule of law and partly determined by non-legal business factors. An optimal dividend policy means that there must be an appropriate balance between the payment of current dividends and the future growth of the company's profits. In this case, the procedure established by law and the sequence of shares preceding the payment of dividends indicates the partial entrepreneurial freedom of the participants in this case.

Optimal dividend problems with a risk probability criterion

AbstractThis paper considers a discrete time optimal dividend payout problem with a risk probability criterion. Different from the expected discounted dividends that are widely studied in the existing literature, our emphasis is the risk probability that an insurance company's total discounted dividend fails to reach a given dividend goal by the time of ruin. We aim to find an optimal dividend policy to minimize such risk probability. More precisely, we establish a general model for optimal dividend problems based on a Markov decision process with varying discount factors and a probability criterion. The associated optimality equation and the existence of optimal policies under the probability criterion are investigated. For a special case with independently identically distributed incomes, we further characterize the properties of optimal value functions and the structures of optimal dividend policies. A value iteration‐type algorithm for computing value functions and optimal policies is developed. The convergence and error bound analyses of the algorithm are also derived. Finally, an optimal dividend policy in a concrete example is presented to demonstrate our main results.

IMPACT OF DIVIDEND PER SHARE ON SHARE PRICES OF SELECTED CONSUMER GOODS FIRMS LISTED IN THE NIGERIA STOCK EXCHANGE

Prospective investors in the Stock Exchange desire empirical based analysis of firms’ performance to guide their investment decisions. This study examined the impact of quantitative factor, dividend per share (DPS) on determination of share prices of the selected consumer goods firms listed in the Nigeria Stock Exchange over the period 2009-2018. One hypothesis anchoring on the impact of independent variable DPS on the share prices was formulated for testing in this study. Judgmental sampling technique was adopted in the study. Annual financial statements of the selected firms were used for the study. Ratio analysis, correlation and linear regression models were used to measure the impact of the independent variable on the Share price (SP), the dependent variable. Paired sample t-test was used to test the hypotheses at 5% level of significance. The empirical findings show that, there is a positive correlation between the independent variable (DPS). DPS is accountable for about 21.7% changes in the share prices of consumer goods firms listed in the Nigeria Stock Exchange. Investors are enjoined to carefully scrutinize the trend in the DPS of the consumer goods company listed in Nigeria Stock Exchange among other variables before investing their funds; doing so will lead them to making good and viable investment decisions. Management of the consumer goods firms should also strive to operate optimal dividend policy that will not be detrimental to the share price of its organization. KEY WORDS: Dividend per share, share price, Stock Exchange, consumer goods firms.

On a class of non-zero-sum stochastic differential dividend games with regime switching

This paper investigates a class of non-zero-sum stochastic differential game problems between two insurance companies. The surplus process of each company is modeled by a Brownian motion where drift and volatility depend on the continuous-time Markov regime switching process. Both companies have the option of paying dividends. The objective is to maximize the expected discount utility of surplus relative to a reference point for each insurer, the gains brought by the insurer’s own dividend payout, and the losses incurred by the dividend payment of the competitor. The gains and losses are proportional to the amount of corresponding dividend payment. To find the optimal dividend policy, we relate this singular control problem to a stopping game. Further, we prove the link based on the verification theorem and show that value functions of the non-zero-sum stochastic differential problem can be derived by integrating value functions of a stopping game. Finally, we apply our results to the case with two regimes and the case without regime switching. Numerical examples are also provided.

МОДЕЛЮВАННЯ ОПТИМАЛЬНОЇ ДИВІДЕНДНОЇ ПОЛІТИКИ УКРАЇНСЬКИХ КОМПАНІЙ

Актуальність теми дослідження полягає в тому, що для досягнення основної мети діяльності суб’єкта господарювання — отримання прибутку, такий аспект як розроблення раціональних пропорцій розподілу прибутку і вироблення оптимальної дивідендної політики, є одним з основних складових забезпечення ефективності діяльності підприємства. Метою дослідження стала розробка методичного підходу до визначення оптимальної дивідендної політики підприємств на основі залежності оптимальної норми дивідендних виплат від структури капіталу підприємств в Україні. Методологічну основу дослідження становить метод багатофакторного регресійного аналізу. На основі цього методу України розроблено поліноміальну регресійну модель складних зв’язків між нормою дивідендних виплат і показниками ефективності діяльності підприємств. Вибір підприємств здійснений за такими критеріями: організаційно-правова форма акціонерного товариства; підприємства здійснюють виплату дивідендів. Період дослідження — 2000—2018 роки. Для перевірки сценаріїв реалізації політики дивідендних виплат розраховано показник еластичності чистого прибутку підприємств, які сформували статистичну базу дослідження, від рівня дивідендних виплат. Для визначення оптимального рівня дивідендних виплат, за якого максимізується позитивний ефект (E = max), побудовано систему функції для різної структури капіталу підприємств і на основі проведення експериментів з цією системою визначено оптимальний рівень дивідендних виплат. Для визначення оптимального типу дивідендної політики, виходячи із рівня дивідендних виплат, оціненого у відсотках від чистого прибутку компанії, використано метод шкалювання за законом Фібоначчі. Розраховано діапазон кількісних рівнів дивідендних виплат досліджуваних компаній, відповідно до якого визначено тип оптимальної політики щодо сформованої структури капіталу компанії. Такий підхід дозволяє визначити відповідний тип дивідендної політики з урахуванням фінансового стану компаній з метою максимізації її ринкової вартості. Утилізує суб’єктивізм у процесі оптимізації дивідендної політики компанії і забезпечує достовірність результатів оцінки оптимального рівня дивідендних виплат. Сприяє підвищенню ефективності чистого прибутку компаній і нарощування потенціалу максимізації їхньої ринкової вартості.

Combined Optimal Stopping and Mixed Regular-Singular Control of Jump Diffusions

In this paper, we examine a model that maximises dividend payments for an insurance company with a debt liability. We assume that the company has a policy to reinvest a proportion of its surplus cash before paying dividends to shareholders. We model the dynamics of the cash reserves as a jump-diffusion process. Combined optimal stopping and mixed regular-singular control of the jump-diffusion process is presented and investigated. In the paper, we show that when the premium rate is less than the liability rate , then the company should not get into business and the optimal dividend policy is to immediately pay out the initial cash reserve as dividends to shareholders. For the case , we show that the optimal risk management depends on the current level of the cash reserves. We demonstrate that the company’s optimal dividend policy is to pay out as dividends surplus cash above a predetermined threshold. We also present numerical examples to illustrate the results obtained.