ABSTRACT
In contrast to the disappearing dividends view prevalent in the literature, we document extensive dividend payments by firms and significant variability within firms and across 16 countries ...during 2000–2013. We predict that within-firm variability in dividends increases investor demand for forward-looking dividend information, and analysts respond by producing informative dividend forecasts. We find that analyst dividend forecasts are available for most dividend-paying firms and are more prevalent for firms with higher variability of dividends. Analyst dividend forecasts are more accurate than alternative proxies based on extrapolations of past dividends. Finally, dividend forecasts (1) are incrementally useful to investors beyond information in other fundamentals, such as earnings and cash flow forecasts, (2) help investors interpret earnings quality, and (3) are associated with investors' portfolio allocation decisions.
Data Availability: Data are available from the public sources cited in the text.
ABSTRACT
We hypothesize that, in weak‐institution countries, firms adjust the ‘timing’ of dividend payments by committing to distribute a percentage of current earnings as dividends, revealing the ...extent of firm‐level agency conflicts to future investors and facilitating the raising of external capital. Consistent with this hypothesis, we find that, on average, firms in weak‐institution countries have a higher speed of adjustment (SOA) to their target payout ratio, pay dividends earlier in the life cycle, and are more likely to disclose a dividend policy committing to pay a minimum percentage of earnings. Within‐country tests show that, in weak‐institution countries, the firms with the highest SOA dividend policies have fewer agency problems and an increased ability to raise external capital. Finally, returns tests around earnings announcements show that high‐SOA dividend policies are associated with larger market reactions to earnings in weak‐institution countries. Collectively, our findings suggest that dividend policy helps to alleviate agency conflicts in weak‐institution countries between firms and (future) investors.
This paper investigates whether investor-level taxes affect corporate payout policy decisions. We predict and find a surge of special dividends in the final months of 2010 and 2012, immediately ...before individual-level dividend tax rates were expected to increase. We also find evidence that immediately before the expected tax increases, firms altered the timing of their regular dividend payments by shifting what would normally be January regular dividend payments into the preceding December. To our knowledge this is the first evidence in the literature about changes in the timing of regular dividend payments in response to tax law changes. For both actions (specials and shifting), we find that it was more likely for a firm to respond to individual-level tax rates if insiders owned a relatively large amount of the firm. Overall, our paper provides evidence that managers consider individual-level taxes in making corporate payout decisions.
A disconcerting, albeit generally accepted, finding is that aggregate stock returns are predictable by dividend yield but dividend growth is unpredictable. I show that part of this lack of dividend ...growth predictability stems from how dividend growth is constructed. I then show a dramatic reversal of predictability in the 134 years during 1872–2005: stock returns are largely unpredictable in the first seven decades, but become predictable in the postwar period; dividend growth is strongly predictable in the prewar years but this predictability disappears in the postwar years. New evidence on the predictability of long-run returns and dividend growth is also shown.
We compare the payout policies of US industrials and banks over the past 30 years to better understand dividends, especially for banks. For industrials, dividends grow strongly after 2002, when the ...declining propensity to pay reverses. Banks have a higher and more stable propensity to pay dividends and resist cutting dividends as the 2007–2008 financial crisis begins. Before the crisis, increases in repurchases push payouts to historic levels. These findings are broadly consistent with the idea that banks use dividends to signal financial strength while agency costs of free cash flow better explain industrial payouts.
We provide evidence on optional stock dividends, a mechanism that allows shareholders to choose between cash dividends and the equivalent number of new shares in lieu of cash. We find that, in ...contrast to dividend cuts, shareholders do not view this option as bad news. When firms offer optional stock dividend in lieu of cash dividends, the market does not react negatively. Facing the choice between cash and stock dividend, shareholders choose 55% of the total dividend in the form of stock dividend. Our findings suggest that firms that are more committed to paying dividends are more likely to offer optional stock dividends to their shareholders.
•Optional stock dividends allow shareholders to choose between cash dividends and the equivalent number of new shares.•In contrast to dividend cuts, shareholders do not view this option as bad news.•Shareholders choose 55% of the total dividend in the form of stock dividend.•Firms committed to paying dividends are more likely to offer optional stock dividends to their shareholders.•Firms offer optional stock dividends to their shareholders when high leverage increases the need for equity.
We investigate the empirical implications of using various measures of payout yield rather than dividend yield for asset pricing models. We find statistically and economically significant ...predictability in the time series when payout (dividends plus repurchases) and net payout (dividends plus repurchases minus issuances) yields are used instead of the dividend yield. Similarly, we find that payout (net payout) yields contains information about the cross section of expected stock returns exceeding that of dividend yields, and that the high minus low payout yield portfolio is a priced factor.
I show dividend policies have peer effects. My estimates indicate that firms speed up the time taken to make a dividend change by about 1.5 quarters and increase payments by 16% in response to peer ...changes. The peer effects matter in increases but not decreases. In contrast to dividends, repurchases show no peer effects. In addition, announcement returns indicate that investors partially anticipate the consequences of peer effects. Overall, peer interdependencies account for 12% of total dividend payments.
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