Information content of dividends: a case of an emerging financial market

2014 ◽  
Vol 31 (3) ◽  
pp. 272-290 ◽  
Author(s):  
Reza H. Chowdhury ◽  
Min Maung ◽  
Jenny Zhang
Keyword(s):  
Cash Flow ◽  
Financial Market ◽  
Good Governance ◽  
Free Cash Flow ◽  
Cash Dividend ◽  
Chinese Firms ◽  
Content Type ◽  
Dividend Payments ◽  
Dividend Increases ◽  
The Impact

Purpose – The purpose of this paper is to examine the signaling and free cash flow hypotheses of dividends in the context of an emerging financial market. Design/methodology/approach – The authors use fundamental financial information of Chinese companies listed in the Shenzhen and Shanghai stock exchanges. They examine the impact of cash dividend payments on future profitability of individual firms with and without controlling for non-linearity in their earnings to test the signaling hypothesis. They also determine the characteristics of dividend paying firms to examine the free cash flow hypothesis. Findings – It was found that while dividend increases by publicly listed Chinese firms are followed by increases in earnings in two subsequent years, such relationship does not exist in the case of dividend decreases. However, under the assumption of non-linearity of earnings, it was found that neither dividend increases nor dividend decreases convey any valuable information about future changes in earnings of Chinese firms. Further, it was found that firms with high cash holdings, large profitability and high managerial efficiency are likely to pay dividends. The authors therefore conclude that announcements of cash dividend payments do not signal future performance but indicate good governance practices of publicly traded firms in China. Originality/value – This evidence is critical for potential foreign investors in their portfolio investment decisions and for regulators in determining an efficient measure of corporate disclosure in China.

Corporate cash flow and dividends smoothing: a panel data analysis at Bursa Malaysia

2015 ◽  
Vol 13 (1) ◽  
pp. 2-19 ◽  
Author(s):  
Apedzan Emmanuel Kighir ◽  
Normah Haji Omar ◽  
Norhayati Mohamed
Keyword(s):  
Panel Data ◽  
Cash Flow ◽  
Panel Data Analysis ◽  
Generalized Method Of Moments ◽  
Cash Flows ◽  
Payout Policy ◽  
Free Cash Flow ◽  
Content Type ◽  
Financial Firms ◽  
The Impact

Purpose – The purpose of this paper is to contribute to the debate and find out the impact of cash flow on changes in dividend payout decisions among non-financial firms quoted at Bursa Malaysia as compared to earnings. There has been renewed debate in recent finance and accounting literature concerning the key determinants of changes in dividends payout policy decisions in some jurisdictions. The conclusion in some is that firms base their dividend decisions on cash flows rather than published earnings. Design/methodology/approach – The research made use of panel data from 1999 to 2012 at Bursa Malaysia, using generalized method of moments as the main method of analysis. Findings – The research finds that Malaysia non-financial firms consider current earnings more important than current cash flow while making dividends payout decisions, and prior year cash flows are considered more important in dividends decisions than prior year earnings. We also found support for Jensen (1986) in Malaysia on agency theory, that managers of firms pay dividends from free cash flow to reduce agency conflicts. Practical implications – The research concludes that Malaysian non-financial firms use current earnings and less of current cash flow in making changes in dividends policy. The policy implication is that current earnings are dividends smoothing agents, and the more they are considered in dividends payout decisions, the less of dividends smoothing. Social implications – If dividends smoothing is encouraged, it could lead to dividends-based earnings management. Originality/value – The research is our novel contribution of assisting investors and government in making informed decisions regarding dividends policy in Malaysia.

The effect of ownership-control disparity on the Chinese firm’s real activity earnings management

2018 ◽  
Vol 30 (4) ◽  
pp. 482-499 ◽  
Author(s):  
Sang Ho Kim ◽  
Yohan An
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Capital Markets ◽  
Chinese Firms ◽  
Real Activity ◽  
Content Type ◽  
Controlling Shareholders ◽  
Cash Flow Rights ◽  
The Impact ◽  
Ownership Control

Purpose This paper aims to investigate the impact of the separation between control and cash flow rights (control-ownership disparity) on the earnings management practices of Chinese firms. The notable features of Chinese firms are those of concentrated ownership and the severe disparity that exists between the control and cash flow rights of controlling shareholders. Design/methodology/approach This study measures the level of Chinese firms’ earnings management by adopting two different methods of measurement: accrual-based earnings management (AEM) and real activity earnings management (REM). The authors also consider the possible trade-off effects between these two types of measurements. The data set in this study encompasses over 2,000 Chinese firms, using data from 2003 to 2015. Findings The results indicate that controlling shareholders are more likely to engage in AEM as their cash flow rights are more concentrated, while they are less likely to use REM as the disparity of control-cash flow rights increases. Further, this inverse relationship between REM and control-cash flow rights disparity becomes more pronounced in the case of a low cash flow rights group. As REM generally causes distortions in firms’ operations, it is possible that the controlling shareholders are more likely to constrain the use of REM as the disparity is perceived to grow. This result may indicate a reduced agency problem between controlling and minority shareholders due to the developing and/or existing ownership dispersions, which are mainly driven by recent reforms applied to Chinese capital markets. However, we do not entirely exclude the possibility of other types of expropriations by the controlling shareholders. It appears that the controlling shareholders are still able to exert a significant level of control, even following a substantial ownership dispersion, and they may seek alternative expropriation methods, including but not limited to intercorporate loan or related party transactions as the disparity of control-cash flow rights increases. Originality/value Although the Chinese economy is experiencing a series of reforms to infuse market forces into capital markets, little has been known about the effects of ownership-control disparity in Chinese firms. Our findings highlight the importance of the country specific context in this vein of research.

Degree of free cash flow leverage

2019 ◽  
Vol 18 (3) ◽  
pp. 346-365 ◽  
Author(s):  
David Yecham Aharon ◽  
Yoram Kroll ◽  
Sivan Riff
Keyword(s):  
Cash Flow ◽  
Capital Expenditure ◽  
Risk Measure ◽  
Efficient Frontier ◽  
Optimal Level ◽  
Free Cash Flow ◽  
Content Type ◽  
Optimal Output ◽  
The Cost ◽  
The Impact

Purpose This paper aims to forgo the conventional (degree of operating leverage) risk measure by replacing elasticity of operating profits with respect to output with elasticity of free cash flow (FCF) with respect to optimal output and by considering exogenous random demand shocks for the firm’s products as a source of risk. Design/methodology/approach The elasticity risk measure accounts for corporate taxes and the cost of bankruptcy. The methodology is selecting optimal level of production investment and capital structure to generate efficient frontier of expected FCF and its risk in terms of its elasticity with respect to output. Findings The risk measure leads to efficient frontier between expected FCF and its idiosyncratic managerial risk. The model also resolves the empirical debate on the tradeoff between operating and financial leverages. Originality/value It is the first elasticity risk measure that embodied the impact of future level of capital expenditure, total level of assets and their sensitivity to random shocks in the product market.

scholarly journals Pengaruh Laba Bersih, Arus Kas Bebas, Dan Arus Kas Operasi Terhadap Dividen Tunai Pada 12 Perusahan Makanan Dan Minuman Yang Terdaftar Di Bursa Efek Indonesia (Periode 2012-2018)

2020 ◽  
Vol 1 (2) ◽  
pp. 101-112
Author(s):  
Ardinal Djalil
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
Free Cash Flow ◽  
Coefficient Of Determination ◽  
Net Income ◽  
Cash Dividend ◽  
Difficult Decision ◽  
Dividend Payments ◽  
Net Profit ◽  
Operating Cash Flow

Abstract : Cash Dividends are the most common type distributed by companies to shareholders. Because cash dividends help reduce the risk of uncertainty in shareholder investment activities. And for companies dividend payments can be used to strengthen the company's position in finding additional funds in the capital market. In determining the amount of dividends to be distributed by management is often faced with a difficult decision. This difficulty is caused by management having to consider paying dividends that are smaller, larger, permanent or stable, because any decision on dividend payments will result in investors acting on the company's shares. This study aims to analyze the effect of net income, free cash flow and operating cash flow on cash dividends. Data was obtained from companies listed on the Indonesian stock exchange in the period 2010-2016. This research uses descriptive verification research method. The independent variables in this study are Net Income (X1), Free Cash Flow (X2), and Operating Cash Flow (X3) and the dependent variable in this study is Cash Dividend (Y). The results of the study and discussion show that in partial testing (t-test), obtained from the tcount for Net Profit of 2.727 and tcount for Free Cash Flow of 2.086 is greater than the table of 1.989. For Operating Cash Flow variable has no influence on Cash Dividends. The assessment can be seen from the tcount for Operating Cash Flow of -1.201 smaller than t table 1.989. Whereas in simultaneous testing (F test), Net Profit (X1), Free Cash Flow (X2) and Operating Cash Flow (X3) simultaneously affect Cash Dividends. The coefficient of determination obtained by 16%, while the remaining 84% is influenced by other factors ignored by the writer in this study.

Sticky cost behavior and its implication on accounting conservatism: a cross-country study

2020 ◽  
Vol 18 (1) ◽  
pp. 169-197
Author(s):  
Yosra Makni Fourati ◽  
Rania Chakroun Ghorbel ◽  
Anis Jarboui
Keyword(s):  
Cash Flow ◽  
Fixed Effects ◽  
Free Cash Flow ◽  
Accounting Conservatism ◽  
International Context ◽  
Content Type ◽  
Conditional Conservatism ◽  
Cost Behavior ◽  
The Impact ◽  
Cost Stickiness

Purpose This paper aims to investigate the impact of cost stickiness on conditional conservatism. Design/methodology/approach The research sample consists of listed companies from 18 countries, using stock market indices of the BRICS, MIST, North Africa, USA and EU over the period ranging from 1997 to 2015. The authors use the firm-fixed effects method in the estimation of the models. Findings The results provide evidence of the existence of cost stickiness and conditional conservatism in the international context, using the Banker et al. (2016) model. They also argue that the conditional conservatism model (Basu, 1997) is overstated because it does not control for cost stickiness. In additional analyses, the authors conclude that the association between cost stickiness and accounting conservatism changes across country groups and across industries. The authors also document that the employee intensity and free cash-flow, as cost stickiness determinants, remain significant in the model including accounting conservatism. Moreover, the findings show that sticky cost behavior distorts inferences about standard demand drivers of conservatism such as leverage and size. Originality/value The findings are interesting and provide a better understanding of cost stickiness and conditional conservatism, and the interaction between these two phenomena in the international context, across country groups and across industries. To the best of the author’s knowledge, the study is the first one including free cash flow as a proxy for agency problem in the full model combining conservatism and cost stickiness models (Banker et al., 2016).

An investigation into the effect of surplus free cash flow, corporate governance and firm size on earnings predictability

2014 ◽  
Vol 22 (2) ◽  
pp. 118-133 ◽  
Author(s):  
Redhwan Ahmed AL-Dhamari ◽  
Ku Nor Izah Ku Ismail
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Firm Size ◽  
Negative Impact ◽  
Governance Structure ◽  
Free Cash Flow ◽  
Least Square ◽  
Content Type ◽  
Earnings Predictability ◽  
The Impact

Purpose – Existing studies on corporate governance mainly focus on how a strong governance system enhances the valuation of firms with cash holding or free cash flow agency problem. The aims of this paper are threefold. First, it investigates the impact of surplus free cash flows (SFCF) on earnings predictability. Second, it investigates whether corporate governance variables moderate the negative impact of SFCF on earnings predictability. Finally, this study examines whether the ability of corporate governance to mitigate SFCF and improve the predictive value of earnings varies between large and small firms. Design/methodology/approach – This paper uses heteroskedasticity-corrected least square regressions upon a sample of Malaysian listed firms. Findings – This paper finds that firms with high SFCF experience less earnings predictability. It also indicates that earnings of firms with high SFCF are more predictable when institutional investors hold a large stake of shares and when a chairperson is independent. Finally, this paper reveals that the role of institutional and managerial ownership in mitigating agency conflict of free cash flow and improving earnings predictability is more prominent in larger firms. This study implies that investors still have reservations about the ability of boards to enhance earnings numbers in Malaysia, although efforts were taken to reform the corporate governance mechanisms following the Asian financial crisis. Originality/value – This research is considered as the first attempt to examine the relationships between SFCF, corporate governance, firm size, and earnings predictability in a developing county such as Malaysia. The findings of this paper serve as a wake-up call to policy makers to evaluate the importance of governance structure in enhancing earnings predictability in emerging economies.

Unexpected investment, tunnelling and financial constraints

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Le Hong Ngoc Ha ◽  
An Thai
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Agency Problems ◽  
Free Cash Flow ◽  
Content Type ◽  
Corporate Managers ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Stock Market Investors ◽  
The Impact

PurposeBased on a sample of 1,435 Vietnamese listed firms over the period from 2005 to 2017, this study examines the sensitivity of unexpected investment to free cash flow and its mechanism.Design/methodology/approachWe tested three hypotheses using two-step system-GMM to investigate investment–cash flow sensitivity for various firm scenarios while accounting for confounding variables.FindingsFirms with negative free cash flow are more likely to engage in underinvestment; conversely, overinvestment is found primarily in firms with positive free cash flow. In terms of the mechanism, while underinvesting decisions are caused mainly by financial constraints, overinvesting behaviour primarily resulted from agency problems, typically in the form of principal-principal conflicts. Interestingly, under the impact of negative cash flow observations, financial constraints tend to decrease investment–cash flow sensitivity. Conversely, the agency costs hypothesis reveals that agency problems are more likely to increase investment–cash flow sensitivity.Originality/valueThese findings not only contribute to the current corporate literature but also provide some important practical implications for stock market investors, corporate managers, and policy-setting bodies, specifically in the Vietnamese market.

Is internal and external mechanism of governance enriching the performance of the banking sector of Pakistan?

2017 ◽  
Vol 17 (4) ◽  
pp. 629-642 ◽  
Author(s):  
Sundas Sohail ◽  
Farhat Rasul ◽  
Ummara Fatima
Keyword(s):  
Corporate Governance ◽  
Banking Sector ◽  
Good Governance ◽  
Random Effect ◽  
Random Effect Model ◽  
General Meeting ◽  
Governance Structure ◽  
Board Structure ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to explore how governance mechanisms (internal and external) enhance the performance of the return on asset (ROA), return on equity (ROE), earning per share (EPS) and dividend payout ratios (DP) of the banks of Pakistan. The study incorporates not only the internal factors of governance (board size, out-ratio, annual general meeting, managerial ownership, institutional ownership, block holder stock ownership and financial transparency) but also the external factors (legal infrastructure and protection of minority shareholders, and the market for corporate control). Design/methodology/approach The sample size of the study consists of 30 banks (public, private and specialized) listed at the Pakistan Stock Exchange (PSE) for the period 2008-2014. The panel data techniques (fixed or random effect model) have been used for the empirical analysis after verification by Hausman (1978) test. Findings The results revealed that not only do the internal mechanisms of governance enhance the performance of the banking sector of Pakistan but external governance also plays a substantial role in enriching the performance. The findings conclude that for a good governance structure, both internal and external mechanisms are equally important, to accelerate the performance of the banking sector. Research limitations/implications Internal and external mechanisms of corporate governance can also be checked by adding some more variables (ownership i.e. foreign, female and family as internal and auditor as external), but they are not added in this work due to data unavailability. Practical implications The study contributes to the literature and could be useful for the policy makers who need to force banks to mandate codes of governance through which they can create an efficient board structure and augment the performance. The investments from different forms of ownership can be accelerated if they follow the codes properly. Social implications The study facilitates the bankers in incorporating sound codes of corporate governance to enhance the performance of the banks. Originality/value This work is unique as no one has explored the impact of external mechanism of governance on the performance of the banking sector of Pakistan.

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