Dividend Smoothing and Debt Ratings

Aivazian, Varouj A.; Booth, Laurence; Cleary, Seán

doi:10.1017/s0022109000002131

Cited by 133 publications

(110 citation statements)

References 18 publications

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“…Table 6 shows that our estimated speed of adjustment of 0.21 (from OLS) and 0.49 (from GMM(DIF)) are at the top end of the values obtained by previous studies on France, Germany, Portugal, the UK and the US. However, similar to our results, other studies (apart from Aivazian et al (2006) and Khan (2006)), have also found an estimated payout ratio which is well below the average payout ratio.…”

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confidence: 91%

The Dividend Policy of German Firms

et al. 2008

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German firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i) published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down. Acknowledgements:We are indebted to Peter Alamire, Steve Bond, Julian Franks, Jens Köke, Colin Mayer, Joe McCahery, Christian Schlag, Reinhardt Schmidt, Mark Wahrenburg, and seminar participants at the Goethe University of Frankfurt for valuable comments and suggestions. We are grateful to Luis Correia da Silva for providing us with part of the data. Dividend policy of German firmsA panel data analysis of partial adjustment models ABSTRACTGerman firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i) published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down.

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confidence: 91%

The Dividend Policy of German Firms

et al. 2008

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“…The marginal effect of INVEST indicates that a 10 percentage point increase in investment opportunities will decrease the likelihood of paying a cash dividend by about 1.5% for an average firm. This means that ISE firms with more investment opportunities need more funds, therefore they are more likely to preserve earnings for investments rather than paying dividends, consistent with studies such as Rozeff (1982), Baker and Wurgler (2004) and Aivazian et al (2006).…”

Section: Analysis Of Financial Characteristics Effect On Dividend Paysupporting

confidence: 74%

“…Contrarily, a firm's funds requirements for growth (investment) opportunities appear to have a negative impact on dividend payouts (Rozeff, 1982;Baker and Wurgler, 2004;Aivazian et al, 2006). Similarly, a firm's debt policy is associated with dividend payments in a negative way, since dividends and debt are considered as alternative mechanisms to control agency costs (Jensen, 1986;Crutchley and Hansen, 1989;Al-Najjar, 2009).…”

Section: H2d: Firms With Dispersed Ownership Structures Are Likely Tomentioning

confidence: 99%

Corporate dividend decisions and dividend smoothing

Al‐Najjar

Kılınçarslan

2017

IJMF

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Purpose -This paper investigates the impact of regulations, reforms and legal environment on dividend policy in a different institutional setting. Particularly, it examines the firm-level cash dividend behaviour of publicly-listed firms in Turkey in the post-2003 period, since there were major economic and structural reforms as well as significant regulatory changes of dividend payout rules imposed by the supervisory bodies.Design/methodology/approach -The paper focuses on a recent large panel dataset of 264 Istanbul Stock Exchange (ISE)-listed firms over a ten-year period 2003-2012. First, it employs a modified specification of Lintner's (1956) partial adjustment model for analysis regarding target payout ratio and dividend smoothing. Second, it performs a logit model for analysis in identifying the link between financial characteristics and the likelihood of paying dividends.Findings -The results show that ISE firms now follow the same determinants as suggested by Lintner. They, indeed, have long-term payout ratios and adjust their cash dividends by a moderate level of smoothing, and therefore adopt stable dividend policies (although less stable policies compared to their counterparts in the developed US market) as a signalling mechanism over the period [2003][2004][2005][2006][2007][2008][2009][2010][2011][2012]. Moreover, the results also report that ownership structure concentration affects the target payout ratio and dividend smoothing in the Turkish market. In addition, the results further show that more profitable, more mature and larger sized ISE firms are more likely to pay cash dividends, whereas ISE firms with higher investment opportunities and more debt are less likely to distribute cash dividends in the post-2003 period.Originality/value -To the best of author's knowledge, this paper is the first major research that examines the implications of reforms and regulations on cash dividend payments and dividend smoothing over time in Turkey during its market integration process in the post-2003 period.

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“…Both theoretically and empirically prior research has identified a connection between agency costs and dividends payouts (Easterbrook, 1984;Jensen, 1986;Fluck, 1999;Gomes, 2000;La Porta et al, 2000;Lie, 2000;Avivazian et al, 2003Avivazian et al, , 2006Chae et al, 2009;Brockman & Unlu, 2011;Bartram et al, 2012). La Porta et al (2000) suggest that in an economy where significant agency problems exist between corporate insiders and outsiders, dividends payouts play an important role.…”

Section: Corporate Governance and Dividends In An Agency Contextmentioning

confidence: 99%

Can Disclosure Quality Explain Dividend Payouts?

Lin

Kuo

Wang

2014

IBR

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This study investigates how a firm's disclosure quality affects its dividend policy. Using a sample of Canadian firms with disclosure data from The Globe and Mail, we empirically test the outcome hypothesis and the substitution hypothesis. The outcome hypothesis posits that dividends are an outcome of an effective governance regime and complements other governance mechanisms while the substitution hypothesis argues that dividend payout is a substitute for other forms of governance. Since disclosure quality can reflect the severeness of agency problems between outsiders and insiders, the outcome hypothesis predicts that higher disclosure quality would lead to higher dividend payouts while the substitution hypothesis predicts that lower disclosure quality is associated with higher payouts. This study contributes to the ongoing debate on the relationship between disclosure quality and dividend policy. Our results provide support for the outcome hypothesis; specifically, better disclosure quality is associated with both a stronger propensity to pay dividends and among dividend payers, with larger dividends.

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Dividend Smoothing and Debt Ratings

Cited by 133 publications

References 18 publications

The Dividend Policy of German Firms

The Dividend Policy of German Firms

Corporate dividend decisions and dividend smoothing

Can Disclosure Quality Explain Dividend Payouts?

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