The Impact of a Firm's Payout Policy on Stock Prices and Shareholders' Wealth in an Inefficient Market

Nippel, Peter

doi:10.2139/ssrn.1253662

Cited by 5 publications

(5 citation statements)

References 33 publications

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“…Firms are sticky in making dividend payments as they are typically grudging to reduce dividend; in particular, they are reluctant to avoid even when firms have negative earnings. The role of BFE and dividend payments is to reduce agency conflict (Sarwar et al, 2018); therefore significant association is predicted between dividend payment during period of uncertainty and firm value, as the dividend payment enhances firms' value (Gordon, 1963;Xiao et al, 2019), and the reduction of dividend payment reduces firm value (Nippel, 2008). (Fama & French, 2001).…”

Section: Firm Value and Dividend Sustainability During Uncertainty Periodmentioning

confidence: 99%

Impact of economic policy uncertainty on dividend decision: A moderating role of board financial expertise

Sarwar

Hassan

2021

Journal of Public Affairs

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Increased competition in the world of emerging financial markets has highlighted the need for more strategic and far‐sighted decisions. Living in a constrained economy investor has always been sensitive about the dividend patterns offered by the firm. Current study focuses on the moderating role of board financial expertise (BFE) on dividend decision of the firm during economic policy uncertainty (EPU), by taking data for 517 nonfinancial listed firms from year 2007–2015. Study presents its empirical model in two forms based on dividend initiation (Di) by nondividend payer firms and dividend termination (Dt) by already dividend paying firms during EPU. Logit model was employed to access the effect of explanatory variables on the probability of terminating the dividend by dividend payers and probability of initiating the dividend by nondividend payers during EPU. The results indicate that firms terminate dividend at the time of uncertainty, but when BFE was introduced as a moderator, previously nonpayer firms initiate dividend and previously payer firms sustain dividends payments at the time of EPU that remains robust with the inclusion of additional CEO level and corporate governance variables. Study further confirms during the EPU, dividend decisions in turn significantly affect firm value as supported by expectancy theory. Results suggest that BFE can be an important signal for keen market participants in deciding future dimensions of a firm.

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Section: Firm Value and Dividend Sustainability During Uncertainty Periodmentioning

confidence: 99%

Impact of economic policy uncertainty on dividend decision: A moderating role of board financial expertise

Sarwar

Hassan

2021

Journal of Public Affairs

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“…The keyword cloud for cluster 3 in Figure 11 reveals that the documents are inclined toward examining the "investor behavior" (Md Husin et al, 2022), "price pressure hypothesis" and stock returns (Kadapakkam and Tang, 1996), "market reaction" concerning "announcement effect" "dividend surprise" (Berezinets et al, 2017), "share buybacks" and "payout policy" (Nippel and Nekat, 2009). However, this part of the literature fails to examine investor behavior from the "behavioral finance" point of view, examining the investor-level psychological variables that influence their decision-making skills during dividend announcements.…”

Section: Cluster 3: Dividend Announcement and Investor Behaviormentioning

confidence: 99%

Dividend announcements and stock returns: a retrospective analysis

Kumari,

Kumar,

Pandey

et al. 2023

QRFM

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Purpose This study aims to provide insights into different aspects of the extant literature on the effects of dividend announcements. Along with other outputs of a bibliometric study, this study provides deeper insights into the concentration of the extant literature and suggest future research agendas. Design/methodology/approach This study uses the bibliometric, network and content analysis of the dividend announcement literature indexed in Scopus. This study presents the temporal analysis, the network of authors, countries, author citations and the co-occurrence of author keywords. This study provides the concentration of the extant literature in three clusters and unearth some key future research areas. This study uses the latent Dirichlet allocation method for robustness. Findings A total of 54 documents examining the US sample have received 1,804 citations. Interestingly, the first article on emerging markets was published in 2002, when at least 34 articles on developed markets had already been published from 1982 to 2001. The content analysis of top-cited literature unveils diverse insights into dividend announcements’ effects on financial markets. Contagion effects negatively impact non-announcing banks, particularly larger ones. Dividend maintenance affects stock market momentum, influencing loser returns. While current dividend/earnings news may not predict future company performance, information content dominates bond market reactions to post-dividend announcements. Concomitantly, while financially constrained firms exhibit short-term gains but worse long-term performance following dividend increases, larger stock dividends send stronger market signals in China. Originality/value This study significantly contributes to the bibliometric and content analysis literature by analyzing the sample documents based on the sample examined. To the best of the authors’ knowledge, no previous bibliometric study in this domain has been conducted to explore the markets (developed and emerging) to which the samples examined belong and the quality of publications from developed and emerging markets.

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“…Further, Douglas (2007) inferred that repurchases provide an opportunity to increase wealth of the managers relative to dividends. Mangers were more inclined in share repurchases for short run growth of stock prices and shareholder value instead of dividend payments (Nippel & Nekat, 2009).…”

Section: The Choice Between Dividends and Share Repurchasesmentioning

confidence: 99%

Signaling mechanism of corporate payout policy: A case of Indian firms

Anwar¹,

Singh²,

Jain³

2016

10.5267/j.ac

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Historically, cash dividends are the most important form of payout policy; however, they have been losing popularity relative to share repurchases. This paper examines the signaling effect of the payout decisions namely, cash dividends and share repurchases by BSE 500 index companies. It attempts to uncover the underlying forces behind the firm's choices of payout policy in the Indian context. Using the standard 'Event Standard Methodology', a strong case of positive signaling is reported in case of repurchase announcements vis-a-vis cash dividend announcements. It is observed that cash dividends are not perceived by investors as positive signals as they prefer their earnings to be retained by the companies for growth prospects. In case of share repurchases, the existence of undervaluation, signaling and wealth transfer hypotheses is reported, consistent with the fact the share repurchases are welcomed by the Indian companies. The results would provide insights into the economics of the choice between cash dividends versus share repurchases as payout mechanism adopted by the sample companies. The findings would also be useful to the academia as well as industry in understanding the payout practice and the extent to which the Indian managers use the assumptions, models and decision rules regarding payout.

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The Impact of a Firm's Payout Policy on Stock Prices and Shareholders' Wealth in an Inefficient Market

Cited by 5 publications

References 33 publications

Impact of economic policy uncertainty on dividend decision: A moderating role of board financial expertise

Impact of economic policy uncertainty on dividend decision: A moderating role of board financial expertise

Dividend announcements and stock returns: a retrospective analysis

Signaling mechanism of corporate payout policy: A case of Indian firms

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