Predicting future earnings growth: a test of the dividend payout ratio in the Australian market

This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship.

The role of payout ratio in the relationship between stock returns and dividend yield

ap Gwilym, Owain, McManus, Ian, and Thomas, Stephen, 'The role of payout ratio in the relationship between stock returns and dividend yield', Journal of Business Finance & Accounting (2004) 31(9-10) pp.1355-1387 RAE2008

International evidence on the payout ratio, earnings, dividends and returns

ap Gwilym, Owain, et al., 'International evidence on the payout ratio, earnings, dividends and returns', Financial Analysts Journal (2006) 62(1) pp.36-53 RAE2008

Dividend payout policy in the Chinese equity market

Jianan Guo’s thesis focus on the dividend payout policy and its interaction with corporate governance mechanism, operating performance and asset pricing in the Chinese equity market. His thesis contributes to the empirical study and literature on the corporate finance in emerging markets.

Does political economy reduce agency costs? Some evidence from dividend policies around the world

This study shows that firms in proportional-electoral countries pay out lower dividends and that the correlation between a firm's growth potential and dividend payout ratio is weaker in proportional-electoral countries. However, firms in proportional-electoral countries that cross-list in majoritarian system countries, tend to pay out higher dividends and the negative relation between growth potential and dividend payout tend to be stronger than their peers that do not cross-list. For a few countries that changed their electoral system towards a more proportional system, we observe a decrease in dividend payout ratio and a weaker relation between growth and dividends after the change. Overall these results indicate that a country's political system affects the severity of agency problems. Further, the effect of legal origin on dividend policy reverses once we include the political economy variables in the regressions. We also document that the electoral system not only affects the amount of dividends paid by a firm but also the form of payment.

Ultimate controlling shareholders and dividend payout policy in Chinese stock market

Departing from the traditional cash flow rights-dividend policy framework, this study investigates whether the level of control rights and the types of ultimate controlling shareholders (UCSs) of listed firms in China influence their cash dividend payout. We find that the level of control rights is positively associated with both the probability to pay and the level of cash dividend payout, which indicates that UCSs use cash dividends to reduce the agency cost of free cash flow and redirect listed firms' cash balance. Furthermore, different types of UCSs influence dissimilarly on the controlled firms' cash dividends, which can be attributed to the backgrounds of these UCSs originating from China's unique partial share issuance privatization process.

The impact of culture and corporate governance in dividend policy: evidence from emerging and developed countries

The present research aims to analyse the impact of corporate governance and cultural dimensions in dividend policy. The corporate governance and dividend policy have a close relationship, in that both are evidenced in literature to mitigate agency problems. Cultural factors are also related to agency problems. The existence of agency problems and their solutions differs across countries and it is related to the implementation of the mechanisms of governance. So, cultural factors may have influence on corporate governance and dividend policy. Our sample consists in 1 232 companies belonging to the main indices of 38 countries classified as emerging or developed. To measure the quality of firm level corporate governance, we use the ASSET4 Corporate Governance Performance Index, developed by Thomson Reuters, and as proxy of culture we use three cultural dimensions developed by Geert Hofstede, namely uncertainty avoidance, masculinity and indulgence. We obtained significant empirical evidence that firms with high quality of corporate governance pay higher dividends. With regard to cultural factors, we confirm that in countries with high levels of masculinity and uncertainty avoidance, the dividend payout ratio is lower. On the other hand, countries with high level of indulgence have higher dividend payout ratio. However, we verify that the impact of cultural effects is minimized when the firms have a high quality level of corporate governance. Additionally, we found that the impact of corporate governance and cultural factors in dividend policy differs when dealing with emerging or developed countries.

Fundamental determinants of the Australian price-earnings multiple

This paper is the first attempt to investigate the factors fundamental to the setting of the price–earnings (P–E) multiple for the Australian stock market. The quarterly P–E ratio for the ASX 200 index is used as a measure of the market wide P–E multiple. It is demonstrated that a large portion of the variation in the P–E multiple can be explained by the dividend payout ratio, interest rates and GDP growth rates. In addition, consumers' confidence—a leading indicator of future growth opportunities, the Australian–US exchange rate—a key determinant of the competitiveness of domestic companies, and volatility of domestic market returns—a risk factor, have incremental explanatory power.

Moral hazard, dividends, and risk in banks

In non-financial firms, higher risk taking results in lower dividend payout ratios. In banking, public guarantees may result in a positive relationship between dividend payout ratios and risk taking. I investigate the interplay between dividend payout ratios and bank risk-taking allowing for the effect of charter values and capital adequacy regulation. I find a positive relationship between bank risk-taking and dividend payout ratios. Proximity to the required capital ratio and a high charter value reduce the impact of bank risk-taking on the dividend payout ratio. My results are robust to different proxies for the dividend payout ratio and bank risk-taking. © 2014 John Wiley & Sons Ltd.

Board composition, ownership structure and dividend policies in an emerging market: further evidence from CASE 50

Purpose – The purpose of this study is to examine dividend policies in an emerging capital market, in a country undergoing a transitional period. Design/methodology/approach – Using pooled cross-sectional observations from the top 50 listed Egyptian firms between 2003 and 2005, this study examines the effect of board of directors’ composition and ownership structure on dividend policies in Egypt. Findings – It is found that there is a significant positive association between institutional ownership and firm performance, and both dividend decision and payout ratio. The results confirm that firms with a higher return on equity and a higher institutional ownership distribute higher levels of dividend. No significant association was found between board composition and dividend decisions or ratios. Originality/value – This study provides additional evidence of the applicability of the signalling model in the emerging market of Egypt. It was found that despite the high institutional ownership and the closely held nature of the firms, which imply lower agency costs, the payment of higher dividend was considered necessary to attract capital during this transitional period.

Board composition, ownership structure and dividend policies in an emerging market: further evidence from CASE 50

Purpose – The purpose of this study is to examine dividend policies in an emerging capital market, in a country undergoing a transitional period. Design/methodology/approach – Using pooled cross-sectional observations from the top 50 listed Egyptian firms between 2003 and 2005, this study examines the effect of board of directors’ composition and ownership structure on dividend policies in Egypt. Findings – It is found that there is a significant positive association between institutional ownership and firm performance, and both dividend decision and payout ratio. The results confirm that firms with a higher return on equity and a higher institutional ownership distribute higher levels of dividend. No significant association was found between board composition and dividend decisions or ratios. Originality/value – This study provides additional evidence of the applicability of the signalling model in the emerging market of Egypt. It was found that despite the high institutional ownership and the closely held nature of the firms, which imply lower agency costs, the payment of higher dividend was considered necessary to attract capital during this transitional period.

Corporate Governance and Dividend Policy in European Banking

This dissertation investigates corporate governance and dividend policy in banking. This topic has recently attracted the attention of numerous scholars all over the world and currently remains one of the most discussed topics in Banking. The core of the dissertation is constituted by three papers. The first paper generalizes the main achievements in the field of relevant study using the approach of meta-analysis. The second paper provides an empirical analysis of the effect of banking corporate governance on dividend payout. Finally, the third paper investigates empirically the effect of government bailout during 2007-2010 on corporate governance and dividend policy of banks. The dissertation uses a new hand-collected data set with information on corporate governance, ownership structure and compensation structure for a sample of listed banks from 15 European countries for the period 2005-2010. The empirical papers employ such econometric approaches as Within-Group model, difference-in-difference technique, and propensity score matching method based on the Nearest Neighbor Matching estimator. The main empirical results may be summarized as follows. First, we provide evidence that CEO power and connection to government are associated with lower dividend payout ratios. This result supports the view that banking regulators are prevalently concerned about the safety of the bank, and powerful bank CEOs can afford to distribute low payout ratios, at the expense of minority shareholders. Next, we find that government bailout during 2007-2010 changes the banks’ ownership structure and helps to keep lending by bailed bank at the pre-crisis level. Finally, we provide robust evidence for increased control over the banks that receive government money. These findings show the important role of government when overcoming the consequences of the banking crisis, and high quality of governance of public bailouts in European countries.

O impacto da política de dividendos no valor de mercado da empresa: o caso das empresas cotadas na Euronext Lisbon - Portugal

Dissertação de mest., Finanças Empresariais, Faculdade de Economia, Univ. do Algarve, 2011

Three essays on economics of predictability of stock returns

A PhD Dissertation, presented as part of the requirements for the Degree of Doctor of Philosophy from the NOVA - School of Business and Economics

Further evidence on the corporate use of derivatives in Australia : the case of foreign currency and interest rate instruments

In a recent issue of this journal Nguyen and Faff (2002) reported on an empirical exploration of the motives behind the aggregate use of financial derivatives by Australian companies. Employing the same sample of firms, the current paper extends their analysis to investigate similar issues, this time focussing separately on foreign currency and interest rate derivatives. At a specific level, our results reveal the following. A firm is more likely to use foreign currency derivatives if it is large and has more debt in its capital structure. Interest rate derivatives, on the other hand, are more likely to be used if a firm is larger, more levered, more liquid and pays higher dividends. These results are consistent with existing hedging theories. Market to book value (proxying growth opportunities), however, portrays an inconsistent relationship with the likelihood of interest rate derivative usage. When it comes to the extent of usage, a firm uses foreign currency derivatives more extensively if it is smaller, pays higher dividends and has more debt. Similarly, interest rate derivatives are used more extensively to address a high level of debt and a high dividend payout policy. At a general level, the current study confirms the core finding of Nguyen and Faff (2002), namely, that Australian companies use derivatives with a view to value maximisation.