Stock Dividends Research Articles

The Impact of Shareholders on Executive Pay

Those who own shares of stock in a company are called shareholders. As such they are in part owners of the company. Typically, stock of large companies is in the hands of institutional investors: mutual funds, private money managers, and public sector pension funds. It is the latter who are long-term investors. Stock is typically sold on a stock exchange (such as the New York Stock Exchange). Shareholders elect members of the company’s board of directors and vote on other matters needing their vote. The 2010 Dodd Frank Act requires that companies submit to shareholders a non-binding vote on executive pay. Since shareholders seek an appreciable return on their investment, they are interested in tying executive pay to shareholder value (stock price and dividends). Shareholder watchdogs review and comment on proposed company actions including executive compensation and anti-takeover devices. Shareholders have a high interest in executive benefits and short as well as long-term incentives. More specifically, they do not like: payouts based on internal goals (ignoring shareholder value); restricted stock awards not tied to performance; stock option reloads; omnibus plans; stock options without performance factors; and evergreen plans.

Multiple Stock Dividends in Oman: Signaling or Liquidity Explanations?

We investigate the possible differences in the information content of stock dividends between firms that distribute stock dividends frequently (frequent distributors) and firms that distribute stock dividends infrequently (infrequent distributors) using a unique dataset from Oman where the market microstructure frictions are either absent or limited. We find that infrequent stock dividend distributors have higher post-distribution operating performance relative to frequent distributors. We also find that the illiquidity measure is significantly related to the announcement effect only for frequent stock dividend distributors, while short-term performance is significantly related to the announcement effect only for infrequent distributors. Our findings indicate that infrequent stock dividends are used mainly to convey favorable private information about the firms' future prospects and frequent stock dividends are used to reduce stock price to an optimal trading range in order to improve trading liquidity.

Stock dividend ex-day effect and market microstructure in a unique environment

This paper examines the stock dividend ex-day effect on the Muscat Securities Market (MSM), which is of interest because several of the market microstructure explanations for the ex-day effect can be ruled out. We find that there are positive abnormal returns on Omani stock dividend ex-days. We also find that firms distributing stock dividends have higher stock prices than firms that are in the same industries but do not distribute stock dividends. In addition, we find that the positive abnormal returns are positively related to stock price increases in the pre-announcement period and to stock dividend percentages. This evidence suggests that stock dividends in Oman might be used to reduce stock prices.

Liquidity-Adjusted Price-Dividend Ratios and Expected Returns

This paper proposes a liquidity-adjusted dividend-ratio model by generalizing static liquidity-adjusted asset pricing theory. We show that log stock prices, dividends, and price impact are cointegrated and define their linear combination as liquidity-adjusted price-dividend ratios. By employing vector autoregressive models, we show that expected future price impact has a significant effect on asset prices. By further decomposing it into permanent and transitory price impacts, we show that they make asset prices more speculative and smooth, respectively. We also show that news about the transitory price impact contributes to a considerable degree of stock market volatility. Our implications can help better understand the speculative behavior of asset prices and thus explain the unusual stock market phenomenon in the late 1990s.

Impact of Dividend Policy/Announcement on Prices of Shares Indexed With Bse

Dividend policy has been an issue of interest in financial literature since Joint Stock Companies came into existence. Dividends are commonly defined as the distribution of earnings (past or present) in real assets among the shareholders of the firm in proportion to their ownership. . Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property. Dividend payment affects a significant impact on wealth of shareholders of accompanies. However, some theories such as the Miller-Modigliani hypothesis theory say thatdividend has no relevance on value of firms. On the other hand Walter and Gordon propagated a theorywhich supposed that investment policy and dividend policy of a company are interlinked andsignificantly affects price of its shares. This descriptive research proposes to test the Walter and Gordontheory by analysing the impact exerted by dividend policy made by companies on prices oftheir shares. The study is based on secondary data, pertaining to share prices of companies indexed inBombay Stock Exchange (BSE), which have made dividend policy. For the result of the study researcher analysed the data by using the Statistical package of SPSS, employing the statistical tool of T Test Analysis. Resultsof the study reveal that a dividend policy exerts a significant impact on share prices ofcompanies.

Relationship between Ownership Structure and the Modes of Dividend Payment: A Study on Dhaka Stock Exchange

This paper investigates whether percentage of ownership controlled by the directors of companies has any association with types of dividend declared by them. Based on the data for the years 2006 to 2009 from the Dhaka Stock Exchange, this paper found that most of the companies provided stock dividends rather than cash dividends. Using Yate’s Continuity Correction Chi-square Test, this study has found existence of a significant relationship between the percentage control of ownership and types of dividend declared. Furthermore, the study indicates that the companies having ≥50% share controlled by the directors are 3 times more likely to offer stock dividends than companies having <50% control of the shares by the directors. Whereas, the companies having ≥50% control of ownership by the directors are less likely to offer cash dividends compared with <50% control of the shares by the directors.

Financial decision-making in a high-growth company: the case of Apple incorporated

Purpose– The purpose of this paper is to develop conceptual knowledge and skills in making financial policy decisions in a rapidly growing and profitable enterprise.Design/methodology/approach– This teaching case was written by documenting and analyzing published information available to the public about Apple. It presents Apple's situation at the end of April 2012. The company reported net profits of US$11.6 billion and income from sales of US$39.186 billion both for the January-March 2012 quarter. Given this highly successful situation, students should assume the role of the company's chief financial officer, Peter Oppenheimer, and make recommendations to the board of directors about what to do with what appears to be a huge cash surplus that the company has accumulated through the years.Findings– Students/participants are usually surprised by the fact that accumulating excess cash could become a problem for any company. Through several discussions of the case the authors have found that answers to this central dilemma depend on students/participants’ experiences. Executive education participants try to maintain the cash and find possible investments, while the less experienced (MBA students) worry about the negative effects of the excess liquidity on value creation. While the former group might be influenced by cash constraints situations frequent in Latin America, the latter group approaches the problem from a theoretical perspective.Research limitations/implications– Since the case was written using public data, therefore it does not take into account the actual opinions and actions of Apple's management team except for those reported by the press.Practical implications– The case points toward an overall discussion on conceptual topics such as dividend policies, share buybacks, and stock splits. It frames this discussion in terms of a financial strategy matrix developed by Hawawini and Viallet. According to this matrix, the company is creating value with excess liquidity, and this context helps practitioners to determine the optimal solution and provides executives with a clear guideline. The management's problem, in this case, is to find ways to invest surplus liquidity productively, or failing that, to define the best way to return it to shareholders.Originality/value– This teaching case provides students and practitioners with a practical application of the Hawawini and Viallet framework to the solution of the financial problem faced by successful companies like Apple. Moreover, it shares the teaching experiences of the authors in both MBA and executive education programs.

Solving the Puzzle of Relative Importance of Dividends and Retained Earnings in Stock Valuation: A Case of Karachi Stock Exchange

Despite the growing debate on the stock price valuation, it has become a complex puzzle. Various theories, models and explanations have been provided to solve this confusing riddle. This study contributes to this debate by determining the relative importance of stock dividends and retained earnings regarding stock price valuation in Karachi Stock Exchange. Data for the analysis of this study were collected from the 66 nonfinancial companies that were included in KSE-100 index for a period from 2007 to 2010. This study found the evidence that dividends are more important variable than the retained earning regarding the explanatory power of stock prices in Karachi Stock Exchange. Practical implications are also provided in the study.

Frequency and Motives for Stock Dividends in a Unique Environment

AbstractWe investigate the possible differences in the information content of stock dividends between firms that distribute stock dividends frequently (frequent distributors) and firms that distribute stock dividends infrequently (infrequent distributors) using a unique data set from Oman where the market microstructure frictions are either absent or limited. We find that infrequent stock dividend distributors have higher postdistribution operating performance relative to frequent distributors. We also find that the illiquidity measure is significantly related to the announcement effect only for frequent stock dividend distributors, whereas short‐term performance is significantly related to the announcement effect only for infrequent distributors. Our findings indicate that infrequent stock dividends are used mainly to convey favorable private information about the firms’ future prospects, and frequent stock dividends are used to reduce stock price to an optimal trading range in order to improve trading liquidity.JEL classification: G14, G35.

Examining the Relationship between the Dividend Policy and Stock Prices in Companies Listed on Tehran Stock Exchange

This research is applied based on the objective and has the library type in terms of data collection because it is seeking to calculate and explain the relationship between the coefficients of each of the independent variables (dividend policies) with the stock price in Iran by using the econometric models. The document part in library studies and the information related to the research variables were applied in order to collect data necessary for the research and also the annual reports of stock were referred. The objective of this study is to study and examine the relationship between the dividend policy and stock prices in Iran during the years 2007 to 2011. The regression equation was determined based on the obtained results according to the type of relationship among the variables of this study. The normality of data distribution was determined through Kolmogorov-Smirnov test. The Analysis of Variance test was done in order to make sure of the relationship between the independent and dependent variables. Then the regression equation of research variables was calculated. Finally, Friedman test was done in order to rank the dependent and independent variables of model. According to the overall result of this study, there is a direct significant relationship between the variables of earnings per share and cash dividend. Moreover, ranking the variables also indicates the preference of earnings per share to the cash dividends. Finally, the regression model of relationship among the variables of research has been also presented.

Merger and acquisition evaluation and decision making model

Based on three merger and acquisition (M&A) methods and applying multiple-criteria decision making, the purpose of this paper is to establish an M&A evaluation model. The decision making trial and evaluation laboratory (DEMATEL) results show that the three business M&A methods possess interactive effect and self-feedback relationships. This study utilizes the analytic network process to calculate the weights of seven evaluation criteria; expected stock dividend is ranked as the most important criterion, followed by stock price/earnings per share, stock dividend growth, sales/market capitalization ratio, discount rate, replacement value, and liquidation value. This study uses Vlsekriterijumska Optimizacija I Kompromisno Resenje (VIKOR) to evaluate the performance of three Taiwanese banks. The results show that Bank B is the best M&A investment choice. Finally, the study establishes a comprehensive M&A decision making evaluation model.

Stock Return, Dividend Growth and Consumption Growth Predictability Across Markets and Time: Implications for Stock Price Movement

Stock Return, Dividend Growth and Consumption Growth Predictability Across Markets and Time: Implications for Stock Price Movement

Shareholder wealth effects of stock dividends in a unique environment

We investigate shareholder wealth effects of stock dividends using a unique dataset from Oman in which many market frictions that are used to explain the stock dividend announcement effect are either absent or limited. We find a positive stock market reaction to stock dividend distributions. We also find that firms that distribute stock dividends experience favorable changes in operating performance during the seven-year period around the stock dividend distribution. Our results suggest that stock dividends are used primarily to signal future operating performance and to a lesser extent to reduce stock prices to an optimal trading range.

The Value Relevance and Information Content of Cash and Stock Dividends in China

The Chinese stock markets provide a unique experimental setting in which to examine how cash and stock dividends convey value relevant information about future performance and future cash dividends. Utilising market valuation equations based on Ohlson (1995), as well as prediction models, and applying them to a large sample of Chinese firms from 2003-2011, we find the following. First, stock dividends are positively associated with firm value, and convey information about future cash dividends and future earnings in the absence of cash dividends. Second, when cash dividends are paid, it is these that convey information about future cash dividends. Third, the value relevance and information content of cash dividends is stronger following the split share reforms and the adoption of IFRS, while the value relevance of stock dividends weakens over the same time period. Our evidence suggests that, in China, where the information environment is not as well-developed as in Western stock exchanges, stock dividends play an important role where cash dividends are not informative and this may help to explain their prevalence.

Effects of dividend tax and signaling on firm valuation: Evidence from taxable stock dividend announcements

Our study aims to isolate the negative tax effect of dividends from their positive signaling effect. We explore the market valuation of taxable stock dividends in Taiwan because management's voluntary taxation makes these dividends a reliable signal. We find that controlling shareholders' shareholdings positively impact market reactions to announcements of taxable stock dividends, while shareholders' weighted average tax rates and the discrepancy between controlling shareholders' ownership and control rights have negative impacts. The integrated tax system that reduces investors' dividend tax burdens alleviates the effects of both tax and signaling. We contribute to the literature by determining the relative importance of tax and signaling effects on firm valuation and demonstrating a unique characteristic of the interaction between stock dividends and ultimate ownership structure.

Investigating the Relationship between Asymmetric Information and Dividend Policy in Iranian Industrial Companies

This study aims to examine the relationship between asymmetric information and dividend policy. Today, researchers and economists have divided the capital market into two distinct forms: The first one is the Perfect Competition Market. Since in this form of market, the level of knowledge is equal among the market factors, there is no possibility to benefit from obtaining hidden information. The second type of market is the Imperfect Competition Market in which the market information is not fully available to everyone rather it can be bought and sold like a commodity. Thus, it gives the chance to those who have more knowledge to gain more profits. Thus, considering the lack of an efficient performance of the capital market, the current study intends to investigate whether there is a significant relationship between asymmetric information and dividend policy. To do so, among the various components of information asymmetry index, asymmetric information is considered as the difference between forecasted earnings and dividends paid to shareholders in the present study. Among the most influential cases affecting stock dividend policy, the index proposed by Fama and French (2001) is used in this study. Basically, the index includes cases such as the firm size, firm risk, profitability and the percentage of dividend and the ratio of market value to book value.

Elective Stock Dividends and REITs: Evidence from the Financial Crisis

In response to the recent financial crisis, the U.S. Government introduced new rules which allow Real Estate Investment Trusts (REITs) to issue elective stock dividends (ESDs), i.e., noncash dividends, to satisfy their distribution requirements. The purported goal of these rules was to provide temporary relief to REITs facing cash flow problems. We investigate how the introduction of these rules affects dividend policy of REITs. Surprisingly, we document that only 17 REITs chose to issue elective stock dividends. We examine the characteristics of these REITs and find that their cash flows are similar to REITs that do not select these dividends. This suggests that cash flow problems are unlikely to be the primary determinant of the ESD issuance decision. Instead, our findings indicate the decision to pay ESDs is related to the level of loans that are close to maturity, REIT size, growth prospects and poor performance during the financial crisis. Furthermore, we find that the same factors determine the ratio, amount and frequency of stock dividends issued by these REITs. We also examine the response of shareholders to ESDs announcements and find positive abnormal returns surrounding these dividend announcements.

Payout Policy under Heterogeneous Beliefs: A Theory of Dividends versus Stock Repurchases, Price Impact, and Long-Run Stock Returns

We analyze a firm’s choice between dividends and stock repurchases in an environment of heterogeneous beliefs and short sale constraints. We study a setting in which the insiders of a firm, owning a certain fraction of its equity and having a certain amount of cash to distribute to shareholders, choose between paying out cash dividends and buying back equity to shareholders, as well as the scale of investment in their firm’s new project. Outside equity holders in the firm have heterogeneous beliefs about the probability of success of the firm’s project and therefore its long-run prospects; they may also disagree with firm insiders about this probability. We show that, depending on the beliefs of firm insiders versus outsiders, the firm may distribute value through cash dividends alone; through a repurchase alone; or through a combination of a cash dividend and a stock repurchase. We also show that, in many situations, it is optimal for firm insiders to underinvest in the firm’s positive net present value project and undertake a stock repurchase with the amount of cash saved by underinvesting. We then analyze the price impact of a cash dividend versus a share repurchase, where the price impact is defined as the abnormal return to the firm’s equity upon the actual payment of a cash dividend or the implementation of a share repurchase respectively (rather than upon the announcement of these events). Finally, we analyze the long-run returns to a firm’s equity following dividend payments and stock repurchases. Our model generates a number of testable predictions different from asymmetric information models of a firm’s choice between dividends versus stock repurchases.

Investigating the Relationship between Asymmetric Information and Dividend Policy in Iranian Industrial Companies

This study aims to examine the relationship between asymmetric information and dividend policy. Today, researchers and economists have divided the capital market into two distinct forms: The first one is the Perfect Competition Market. Since in this form of market, the level of knowledge is equal among the market factors, there is no possibility to benefit from obtaining hidden information. The second type of market is the Imperfect Competition Market in which the market information is not fully available to everyone rather it can be bought and sold like a commodity. Thus, it gives the chance to those who have more knowledge to gain more profits. Thus, considering the lack of an efficient performance of the capital market, the current study intends to investigate whether there is a significant relationship between asymmetric information and dividend policy. To do so, among the various components of information asymmetry index, asymmetric information is considered as the difference between forecasted earnings and dividends paid to shareholders in the present study. Among the most influential cases affecting stock dividend policy, the index proposed by Fama and French (2001) is used in this study. Basically, the index includes cases such as the firm size, firm risk, profitability and the percentage of dividend and the ratio of market value to book value.

The Love for Stock Dividends: Chinese Evidence

This paper examines the announcement effects of dividends with an emphasis on stock dividends in the Chinese capital market. We find that dividend paying stocks exhibit significantly positive abnormal returns while non-dividend paying stocks show a negative announcement effect. Further, we document that the cumulative abnormal returns for the pure stock dividends and the combined dividends are the main drivers of this announcement effect. In contrast, pure cash dividend stocks experience no significant price run-up before announcement. The significant announcement effect of stock dividends is robust to the controlling of the effect of earnings surprise. We offer some discussion of the possible explanations of the puzzle.