John Consler and Greg M. Lepak
The purpose of this paper is to describe and compare the mean response for selected financial variables in three dividend paying groups before and after the financial crisis of…
Abstract
Purpose
The purpose of this paper is to describe and compare the mean response for selected financial variables in three dividend paying groups before and after the financial crisis of 2008. Dividend initiators are expected to be rewarded by investors over traditional dividend paying firms.
Design/methodology/approach
Quarterly CRSP data from 2000 to 2012 are used to define dividend paying groups. Highly unbalanced financial data on dividend paying firms are analyzed in two truncated sample periods defined before and after the financial crisis. Fitted models describing differences in dividend paying groups are based on the linear mixed model representation of penalized splines with random effects to account for repeated measures over time.
Findings
Results are presented on the important differences in selected financial variables before and after the financial crisis by dividend paying pattern group (traditional, initiators, residual/catering). Special emphasis is given to the analysis of market/book value ratio. Results demonstrate dividend initiators are rewarded over traditional dividend firms by investors. Firms with an intermittent paying pattern have no advantage. All dividend paying firms grow during the 2008 financial crisis. Traditional dividend payers have larger size than other dividend payers. The size effect explains results for several of the financial variables studied.
Research limitations/implications
Future work can include an industry effect on the three dividend paying groups.
Practical implications
Investors appear to prefer certainty as to when they receive a dividend over uncertainty, especially in times of economic downturn and economic recovery.
Social implications
Enhanced awareness that different payment patterns exist and are rewarded differently over time on both the corporate issuer and investor sides.
Originality/value
This study adds to body of knowledge of practical dividend payment patterns around a financial crisis. It also provides added support for dividend initiators.
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John Consler, Greg M. Lepak and Susan F. Havranek
The purpose of this paper is to compare the relative power of operating cash flow and earnings in the prediction of dividends.
Abstract
Purpose
The purpose of this paper is to compare the relative power of operating cash flow and earnings in the prediction of dividends.
Design/methodology/approach
A linear mixed effects model is used in terms of selected model fit criteria.
Findings
Based on the selected model fit criteria, cash flow per share is shown to produce a better fit than earnings per share, but it cannot be said how much better.
Research limitations/implications
Quarterly CRSP and Compustat data from 2000 to 2006 for 1,902 dividend‐paying firms are analyzed. Future work would need a different methodology to determine how much better cash flow is as a predictor of dividends.
Practical implications
Both earnings per share and cash flow per share are found to be reasonable dividend predictors.
Social implications
Additional insight is provided on modeling factors that contribute to a firm's decision to engage or disengage in a dividend payment policy.
Originality/value
The study described in this paper continues work on predicting dividends per share. Results show cash flow per share is a better predictor than earnings per share. Investors and analysts predict dividends as part of their stock valuation work. This study suggests focusing attention on using cash flow per share as the predictor of dividends.
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Mohamed H. Elmagrhi, Collins G. Ntim, Richard M. Crossley, John K. Malagila, Samuel Fosu and Tien V. Vu
The purpose of this paper is to examine the extent to which corporate board characteristics influence the level of dividend pay-out ratio using a sample of UK small- and…
Abstract
Purpose
The purpose of this paper is to examine the extent to which corporate board characteristics influence the level of dividend pay-out ratio using a sample of UK small- and medium-sized enterprises from 2010 to 2013 listed on the Alternative Investment Market.
Design/methodology/approach
The data are analysed by employing multivariate regression techniques, including estimating fixed effects, lagged effects and two-stage least squares regressions.
Findings
The results show that board size, the frequency of board meetings, board gender diversity and audit committee size have a significant relationship with the level of dividend pay-out. Audit committee size and board size have a positive association with the level of dividend pay-out, whilst the frequency of board meetings and board gender diversity have a significant negative relationship with the level of dividend pay-out. By contrast, the findings suggest that board independence and CEO role duality do not have any significant effect on the level of dividend pay-out.
Originality/value
This is one of the first attempts at examining the relationship between corporate governance and dividend policy in the UK’s Alternative Investment Market, with the analysis distinctively informed by agency theoretical insights drawn from the outcome and substitution hypotheses.