Payout Policy Research Articles

Payout policy, managerial perquisites, and sticky SG&A costs

AbstractBackgroundSticky SG&A costs provide a novel opportunity to investigate whether payout policy serves as a remedy for management overspending on perquisites that are embedded in SG&A expenses. Payout policy, especially under strong governance, may reduce overspending. Another possibility is that management may use sales declines opportunistically to repurchase shares when sales are expected to rebound.MethodsRegression analysis is used to examine the effect of payout mechanisms (dividends, share repurchases, and combinations thereof) and shareholder rights (EIndex) to determine whether managerial overspending on perquisites is reduced through payout policy.ResultsThe results indicate that dividends and share repurchases are associated with reduced SG&A cost stickiness. Payout policy reduces sticky SG&A costs under both strong and weak governance, where dividend payout is significant only for firms with strong governance, and share repurchases primarily significant for firms with weak governance.ConclusionUnder strong governance, dividends are significantly associated with reduced SG&A cost stickiness, supporting agency theory. However, strongly governed dividend payers are only significant when they also repurchase shares. For the weak governance sample, dividends are not significant, but share repurchase is significantly associated with less sticky SG&A costs, consistent with weakly governed management repurchasing shares in times of lower sales to improve earnings per share, reduce SG&A expenses to improve net income, and fund the share repurchases.

Carbon risk and corporate investment: A cross-country evidence

This paper investigates the effect of carbon risk on corporate investment using data from 41 countries for the period 2002–2017. There is strong evidence showing that the impact of carbon risk on corporate investment is negative and statistically significant. Carbon risk also reduces investment inefficiency. We find that carbon-intensive firms are affected more severely compared to carbon-non-intensive ones. Further, the effect depends on the level of a firm's financial constraints, where it is stronger in firms with financial constraints measured by firm size, age, KZ index, and dividend payout policy. Our findings remain consistent in several robustness tests.

Dampak Tata Kelola Perusahaan Terhadap Kebijakan Pembayaran Dividen Pada Perusahaan Manufaktur

This research paper scrutinizes the influence of corporate governance which was one of the determinants of dividend payments policy. A total of 195 manufaturing companies listed on Indonesia Stock Exchange used for sampel on this research and using 5 years period start from 2016-2020. The data used in this paper is secondary data and the sampling method is using purposive sampling method. The panel data regression methode is used for this research to test the influence of independent variable toward dependent variable. The outcame of this study reveal that board gender diversity and return on asset ratio (ROA) have negative effect on dividend payout ratio (DPR). However, board size and leverage have no effect on dividend payout ratio (DPR). This research expected to provide an information and overview to investor in making investment decision to pay attention to coporate governance because it's has an impact on the firm's dividend payout policy.

On buybacks, dilutions, dividends, and the pricing of stock‐based claims

AbstractWe develop a structural model of the firm that accounts for dilutions, resulting from interest payment shortfalls, and allows cash surpluses to be distributed under a payout policy that permits a combination of dividends and buybacks. Since the model tracks the number of outstanding shares, it can distinguish between claims dependent on the price of a share versus claims that depend on total equity. With a further extension of the model to incorporate employee stock grants, we demonstrate how the prices of traded stock options and employee grants are affected by payout policy. The impact of both dilutions and buybacks on traded option prices and employee grants is shown to be material. This magnitude is further illustrated through a case study involving five technology firms.

Do multinational firms respond to personal dividend income tax rates?

This study examines the effect of investor-level income taxes on profit repatriation and dividend payout policies of multinational firms. The empirical estimations include two million firm-year observations in 130 countries. By augmenting the Lintner model of dividend payments, I employ parametric as well as semiparametric techniques to provide evidence that income taxes on dividends neither alter dividend payments to investors nor within-firm dividend payments. These results remain robust to a wide range of alternative specifications.

Does gender diversity on firm\u2019s board affect dividend payouts? Evidence from India

This study attempts to determine whether gender diversity on the firm's board affects the dividend payout ratio concerning firms listed on Nifty 50 in India. Multiple regression analysis and the logit model have been employed. The dependent variable is the dividend payout policy of the firm, and the independent variable is gender diversity. The regression model incorporated control variables that have been popularly listed in the extant literature. The robustness of the results has also been tested. It was found that there exists a positive association between the percentage of female directors and the dividend payout ratio. Results also found that there is a positive impact of the number of female directors on the dividend to total assets. This implies that gender diversity on board positively affects the payout ratio of firms. This study is the first of its kind to investigate the association of gender diversity on the firm's board and dividend payout ratio.

Corporate Governance and Dividend payout Policy: Mediating Role of Leverage. Evidence from Emerging Economy

This study seeks to explore the relationship between corporate governance and dividend payout policy Mediating role of leverage between corporate governance and dividend payout in PSE 100 index nonfinancial firms is also explored. Relationship between corporate governance with dividend payout and leverage as determinant of dividend is already established but mediating role of leverage is checked for the first time. CEO duality, audit committee, number of meetings, independent directors and board size are taken indicators of corporate governance. The empirical results show that leverage plays mediating role between corporate governance and dividend payout policy when CEO is not holding the office of Chairman BOD and audit committee exists. Board size is significantly and positively related with leverage and the leverage is significantly and negatively related with dividend payout ratio. Result reveal that if a company has audit committee and CEO is separate from chairman board of directors and want to increase the dividend payout then the company will have to decrease its leverage. Empirical results show that board size is significantly and positively related to leverage and leverage is significantly and negatively related to dividend payout. So the company will have to keep its board size minimum to minimize the leverage and maximize dividend payout if it is willing to pay higher dividends. On the other hand, it is found that the investors who opt to purchase shares with the intent to receive higher dividend they will have to select a company with minimum board size. It is revealed from the empirical results that smaller board size keeps the leverage minimum and consequently dividend will be maximum.

Corporate life cycle and dividend payout: A panel data analysis of companies in an emerging market

Background: The dividend payout policy remains one of the key functional areas of corporate finance because it is through receipt of dividends that shareholders can share in the profits of their investments. Amongst the dividend payout theories that have been developed over the decades, the life-cycle hypothesis has received little attention in research.Aim: The aim of this study was to test the dividend life-cycle hypothesis in the South African contex.Motivation for the study: Justification for this study in the context of South Africa is that there is minimal research in this regard in emerging economies. South Africa presents a good platform for this research because it is amongst the highly regarded emerging markets and this has been confirmed by its representation in Brazil, Russia, India, China and South Africa (BRICS) countries. Hence, results in this regard would shed some light in the form of a relative representation of overall emerging markets trend.Research approach/design and method: A panel data of 119 Johannesburg Stock Exchange (JSE) listed sample companies were used to test the hypothesis during the period 2006–2015. A combination of basic and dynamic panel data estimators was used to analyse the data.Main findings: The study finds that the dividend life-cycle hypothesis is prevalent amongst South African companies. Specifically, it was observed that the considered companies pursuing growth projects paid less dividends. Furthermore, the growth companies have shown to be more aggressive in their pursuit for growth and hence are able to create more value for shareholders than value for companies.Managerial implications: Financial managers will be afforded with enhanced decision alternatives in respect of their fiduciary duties towards the shareholders in respect of maximising value.Conclusion: These results provide a mirror image of those of the developed markets and a good context for future research in the same area in an emerging economy setting.

Three Corporate Finance Practices in Pakistan: A Review of Previous Studies and Way Forward

This study reviews the empirical studies arranged on Pakistani capital market and specifies the pattern of three corporate finance practices. The subject of corporate finance discusses the various activities performed at firm level such as capital budgeting, capital structure, and dividend payout policy. The capital budgeting technique consists of six methods i.e., net present value, discounted cash flow, payback period, and internal rate of return etc. but Pakistani firms often interested in net present value and internal rate of return for capital investment evaluation. Similarly, the capital structure decision carries the debate on two options of financing i.e., debt financing and equity financing but literature shows that the Pakistani firms generally follow the pecking order theory and prefer more debt financing. Similarly, as for concern dividend payout policy, literature discusses the different theories and determinants but still unable to generalize the dividend payout trend specifically in Pakistani context. Corporate managers and policymakers can use the conclusion for strategic purposes.

Dividend Payout Policy and Global Financial Crisis: A Study on Malaysian Non-Financial Listed Companies

Manuscript type: Research paper Research aims: This paper examines the impact of the global financial crisis on Malaysia non-financial index firms’ dividend policies. Design/Methodology/Approach: This paper used panel data of 495 firm-year observations of Malaysian non-financial index firms from 2006 to 2016. Research findings: Our findings indicate that firms adjust their dividend policies during the pre-crisis and post-crisis periods; more profitable and larger firms are more likely to distribute their dividend payouts, whereas firms with higher leverage are more likely to omit their dividends. Moreover, dividend policies that will increase firms’ valuation are adopted in Malaysia. This is reflected in the signalling theory with evidence that higher profitability exerts a positive influence on firms’ propensity to increase and/or maintain dividends over different study periods, implying that markets attach a high valuation to firms that can pay, especially during the crisis period. We also find the role of catering theory and smoothing hypothesis lost relevance in both crisis and non-crisis periods. Thus, the catering theory and smoothing hypothesis were not supported in Malaysia. Theoretical contribution/Originality: This study investigates the impact of the global financial crisis on Malaysia non-financial index firms’ dividend policies. This paper suggestion can act as a catalyst to more comprehensive and detailed researches and studies on dividend policy in any economic landscapes. Practitioner/Policy implications: This paper may also guide companies on the structure and use of dividend distribution over the precrisis, during the crisis, and post-crisis periods. Research limitation/Implications: One limitation of the study is that the measures used for dividend payout determinants are only based on the theory investigated. These measures may not completely reflect all the payout determinants. Future research could address this limitation by employing other factors in the study of dividend policy such as inflation, economic growth, and corporate governance.

Hot-Stove Effects: The Impact of CEO Past Corporate Experiences on Dividend Policy

AbstractThe personal traits of chief executive officers (CEOs) have been found to influence corporate policy decisions. We examine the impact of CEO past corporate distress experiences on payout policy. CEOs who have experienced a distress event in their career, while working in a non-CEO position at a different firm, subsequently alter corporate payout policy once in the CEO position. They are less likely to pay dividends and repurchase shares, pay out lower levels of dividends, and are less likely to increase dividends. They further exhibit preference toward repurchases. Overall, we report that experience-driven conservatism affects payout policy, a novel finding in the literature.

Financing Discretionary Payout via Debt or Equity – Evidence From India

The purpose of the paper is to examine financing payout behavior of Indian firms. Specifically, the reliance of Indian firms on capital markets to finance their discretionary payouts (DCP) is explored using data of S&P BSE 500 firms for the sample period from 2010 to 2020. This study reports several new findings for the payout policies followed by Indian firms. First, dividend payouts are not disappearing in India because dividend payout ratio and share repurchase ratio for Indian firms are found to increase during the sample period. Second, rupee magnitude of dividend payments and percentage of firms paying dividends are also increasing. Third, the financing of DCP shows that firms finance DCP mostly with debt and occasionally with equity. Fourth, firm characteristics namely size, excess leverage, excess cash, market-to-book ratio, R&D (only for debt financing), managerial ownership, cash flows, and credit rating influence financing of DCP with debt and equity issuance. Lastly, business cycle conditions are shown to influence debt financed DCP. Overall, the findings run counter to existing studies which state that dividends are disappearing because this study finds evidence of increasing dividends among Indian firms and provides insights to practitioners and academicians on the financing of payout policy in India.

Relationship between Board Characteristics and Dividend Payment Policies

Objective: To investigate the relationship between corporate governance board characteristics and dividend pay-out (e.g. dividend pay-out ratio).
 Method: A panel regression analysis was undertaken to investigate the relationship between corporate governance board characteristics and dividend pay-out (e.g. dividend pay-out ratio). Data was collected from a sample of 29 firms in the top-40 of the Johannesburg Stock Exchange (JSE). Data collected spanned for a period of five years from 2013 – 2018
 Results: Obtained result demonstrate that there is a significant relationship between board diversity, as measured by ethnicity, the board independence and the dividend pay-out ratio.
 Originality/Relevance: Previous studies have asserted that corporate governance affects the level of dividends paid out by a firm. What has remained unclear with the previous studies is whether the dividend pay-out is an outcome or a substitute for effective governance. 
 Theoretical/methodological contributions: The results suggest that there is a strong evidence in favour of the substitution hypothesis, where JSE top 40 boards with a higher degree of independence did not need to use dividends as a tool for monitoring managerial behaviour. The results illustrate evidence supporting the maturity and dividend smoothing theories, and this is observed through the significant relationships established between profitability, previous dividend and the dividend pay-out ratio.
 Social/management contributions: The main contribution of this study being the establishment of the determinants of dividend pay-out policy in South Africa’s JSE listed companies.

The Relationship between Board Characteristics and Dividend Payment Policies

Objective: To investigate the relationship between corporate governance board characteristics and dividend pay-out (e.g. dividend pay-out ratio). Method: A panel regression analysis was undertaken to investigate the relationship between corporate governance board characteristics and dividend pay-out (e.g. dividend pay-out ratio). Data was collected from a sample of 29 firms in the top-40 of the Johannesburg Stock Exchange (JSE). Data collected spanned for a period of five years from 2013 – 2018 Results: Obtained result demonstrate that there is a significant relationship between board diversity, as measured by ethnicity, the board independence and the dividend pay-out ratio. Originality/Relevance: Previous studies have asserted that corporate governance affects the level of dividends paid out by a firm. What has remained unclear with the previous studies is whether the dividend pay-out is an outcome or a substitute for effective governance. Theoretical/methodological contributions: The results suggest that there is a strong evidence in favour of the substitution hypothesis, where JSE top 40 boards with a higher degree of independence did not need to use dividends as a tool for monitoring managerial behaviour. The results illustrate evidence supporting the maturity and dividend smoothing theories, and this is observed through the significant relationships established between profitability, previous dividend and the dividend pay-out ratio. Social/management contributions: The main contribution of this study being the establishment of the determinants of dividend pay-out policy in South Africa’s JSE listed companies.

Master Limited Partnership Research in Accounting, Economics, and Finance

ABSTRACT I review the research on master limited partnerships (MLPs) in the accounting, economics, and finance literature. I begin by outlining the scope of the review and providing a brief background on the structure, taxation, and governance of master limited partnerships. Next, I describe the various sources from which MLP data are derived. I then review the research, aggregating it into four broad categories: (1) taxes and organizational form; (2) taxes, capital structure, and payout policy; (3) valuation; and (4) governance research. Within each section, I present possible avenues for future research in accounting, economics, and finance.

Financial Constraints and the Sustainability of Dividend Payout Policy

This article investigates the relation between dividend payout policy and financial constraints, focusing on the Italian SMEs between 2015 and 2019 and adopting credit ratings as a measure of access to external financial resources. According to our findings, there is a positive relation between firm solvency and the payment of dividends, suggesting that, when companies’ financial constraints are higher, we can expect lower odds that they will pay out dividends. Nevertheless, there is also evidence that younger SMEs are interested in signaling their expected profitability to attract future investors and support access to the capital market.

Dividend policy-performance nexus: PMG-ARDL approach

This paper examines the long run and short run link between dividend payout policy and corporate performance of quoted companies in Nigeria over the period 2001–2018. The study employs data of 80 listed companies collected from the audited financial statements of the companies and the publication of Central Bank of Nigeria. Using Pooled Mean Group-Autoregressive Distributed Lag approach, the result shows that dividend policy negatively and statistically influence performance in the short run, while in the long run the effect is positive and significant.

Shareholder litigation rights and corporate payout policy: Evidence from universal demand laws

This study exploits the staggered adoption of universal demand (UD) laws, which place significant obstacles to derivative lawsuits and thus, undermine shareholders’ rights by 23 states in the United States (U.S.) from 1989 to 2005 as a quasi-natural experiment to examine the effects of shareholder litigation rights on corporate payout policy. Weakened litigation rights for shareholders materially increase firms’ payout ratios. The effect is more pronounced for firms exposed to higher shareholder litigation risk ex-ante, firms with higher institutional holdings, and ones financially unconstrained. Overall, the findings are consistent with lower shareholder litigation threats motivating firms to increase dividend payouts.

Dividend Restrictions and Asymmetric Information

We develop a dynamic model of banks whose insiders have superior information about the impact of a pending shock to the bank’s cash holdings and can signal the bank’s type through its dividend policy. Banks that will be adversely affected by the shock have incentives to pool with unaffected banks to increase their market value. To avoid being mimicked, the unaffected banks can credibly signal via a more aggressive payout strategy. Dividend payout restrictions have the potential to prevent a separating equilibrium from forming. This leads to the bad type adopting a more aggressive payout policy with a higher risk of default but mitigates the distortion of the good type's policy. We identify a number of scenarios where this trade-off presents an opportunity for regulatory intervention and some where it does not.

Oil shocks and corporate payouts

This study uses a novel method of segregating oil price shocks into demand- and supply-driven contributors to examine their impact on the corporate payouts of US companies. Using a large sample of data comprising 106,753 to 115,853 observations over the 1985–2019 period, our firm fixed-effect regression estimates show that oil demand shocks substantially increase corporate payouts through greater share repurchases (but lower cash dividends), whereas oil supply shocks reduce payouts mainly through fewer share repurchases. Further analysis reveals that these effects are driven predominantly by non-oil producers (i.e., oil user groups) as oil shocks generally have no significant bearing on the corporate payouts of oil-producing firms (except cash dividend reductions during oil supply shocks). Our findings suggest that oil demand shocks, which signify economic growth, prompt non-oil industries to substitute cash dividends with stock repurchases to signal better future prospects. On the other hand, oil supply shocks induce uncertainty about future prospects, which prompts non-oil industries to reduce their corporate payouts. Overall, our findings contribute to the energy finance literature by revealing the role of differentiated oil shocks in explaining corporate payout policies.