Dividend signalling and sustainability

Abstract

We examine the 'disappearing dividends' era documented by Fama and French (2001) with respect to the traditional theory of signalling, wherein the positive signal is one of high future cash flows and continued payments. We report several new findings. First, during the disappearing dividends era, dividends vanished not only because they were less frequently initiated-the oft-cited reason-but also because, once initiated, they were less likely to be sustained. Second, we find that although future performance does increase with dividend sustainability, performance is merely average for permanent payers and poor for temporary payers. Third, we find that the market responded favourably to initiations but did not distinguish ex-ante between short-run and longrun payers. Fourth, we find that despite the market's similar treatment of shorter-and longer-term payers, dividend sustainability was in fact predictable out of sample, using information strictly available to investors at the time of the announcement. Fifth, we find that performance is predictable through sustainability; the firms we predict to become permanent payers significantly outperform their counterparts in subsequent years. Overall, our findings run counter to the traditional signalling theory of dividends in terms of both overall firm performance and the market's reaction to initiations.

Usefulness of comprehensive income reporting for dividend policy in the polish listed companies

“…In particular, a large part of the studies is dedicated to the market value of company after the announcement of the decision to pay out an initial or maiden dividend (Lipson et al, 1998;McCaffrey and Hamill, 2000). This information is usually positively received by investors, which means that it results in an increase in the market value of company, which is in line with the signaling theory (Hobbs and Schneller, 2012). Most research, based on the cumulative abnormal return (CAR), have showed a positive response of capital markets to the information about: a) an initial dividend payout (Lacina and Zhang, 2008;Sare et al, 2014;Goel, 2015); b) an increase in dividend payment (Dasilas and Leventis, 2011;Sare et al, 2014).…”

“…However, their results are contradictory. Research conducted by Hobbs and Schneller (2012) showed no differences in the market value of dividend payers and dividend non-payers. In turn, the research by How et al (2011) and Nguyen (2014) indicated that after five years of regular dividend payouts, the average monthly rate of return is higher for dividend companies ISSN 1994ISSN -1749ISSN .…”

“…Dividend policy of regular payouts is crucial because if expected dividend is omitted a decrease in the market value of company may be observed (Michaely et al, 1995, p. 574). In turn, if dividend occurs regularly, the investors usually treat it as a positive signal, which usually results in a higher market value of company (Hobbs & Schneller, 2012, p. 1401). Among the model dividend policy, we distinguish: constant dividend per share policy, constant dividend per share plus extra dividend policy, constant payout ratio policy, extreme dividend policy, residual dividend policy and hybrid or compromise dividend policy (Pieloch-Babiarz, 2018).…”

Achieving Long-term Stock Returns on Shares Regularly Paying Out Dividend

“…W szczególności duża część badań jest poświęcona kształtowaniu się kursu rynkowego akcji po ogłoszeniu decyzji o wypłacie dywidendy inicjalnej (initial dividend, maiden dividend), za którą przyjmuje się pierwszą wypłatę z zysku netto na rzecz akcjonariuszy spółki giełdowej przeprowadzoną przez spółkę po pierwszej ofercie publicznej 1 [Lipson, Maquieira, Megginson, 1998, s. 38;McCaffrey, Hamill, 2000, s. 533]. Informacja o wypłacie pierwszej dywidendy jest zwykle pozytywnie odbierana przez inwestorów, co jest zgodne z teorią sygnalizacji [Payne, 2011, s. 149;Hobbs, Schneller, 2012, s. 1395. W okresie okołoogłoszeniowym obserwuje się zazwyczaj wzrost wartości rynkowej spółki.…”

“…Badania prowadzone z uwzględnieniem długiego horyzontu inwestycyjnego (obejmujące okres do 5 lat) nie dostarczają jednoznacznych wyników dotyczących reakcji rynku kapitałowego na regularne wypłaty dywidendy. Niektóre analizy [Hobbs, Schneller, 2012, s. 1395 nie wykazują różnic w wysokości kursu rynkowego akcji spółek dywidendowych i tych niewypłacających dywidendy. Inne badania wskazują z kolei, że w ciągu 5 lat po zainicjowaniu wypłaty dywidendy średnia miesięczna stopa zwrotu jest wyższa w przypadku spółek dywidendowych [How, Ngo, Verhoeven, 2011, s. 267;Nguyen, 2014, s. 583].…”