scholarly journals Speed of Adjustment in Dividend Payout Decisions: A Comparative Analysis of Developed and Developing Countries

2019 ◽  
Vol 13 (2) ◽  
pp. 7-24
Author(s):  
Nicos Koussis ◽  
Vladislav Ruzinskii
Keyword(s):  
Payout Policy ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Net Income ◽  
Specific Level ◽  
Financial Modeling ◽  
Speed Of Adjustment ◽  
Working Paper ◽  
Top Managers ◽  
Dividend Smoothing

The analysis of dividends payout policy has been apopular subject of research since the middle of the 20thcentury. Despite a huge number of investigations thereis no consensus opinion as to the best practices in thefield. Over the years, different hypotheses have been putforward proposing various methodologies. Some workingpapers underline share repurchase as the best approachtowards payout policy [1]. On the other hand, there aresome investigations which emphasize the opposite pointof view: that dividends are more preferable [2]. Anotherexplanation states that there is no qualifiable difference intypes of payout policy [3]. However, the majority of recentworking papers argue that the best approach is to combine share repurchases and dividends [4].Academic investigations into payout policy began withLintner’s working paper [5]. This research includes notonly financial modeling and results based on regression analysis, but also presents information concerningthe preferences of top-management in payout policydecisions. As a result of interviews with top managers,Lintner identified the existence of a target value fordividend payouts. So, managers tried to maintain theshare of net income attributed to dividends instead ofthe value of dividends themselves. Moreover, Lintnerfound that there is a pertinent speed of adjustment1individend policy. This phenomenon is described by thefact that in case of significant net income changes, firmsdo not pay all the dividends targeted at a specific level ofnet income. Companies only adjust the level of dividendsin the direction of the changes. Lintner also providedan explanation of this fact. It was noted that companies’top management was sure that significant changes in dividends can be negatively appraised by the stock market,especially in case of a fall in the value of dividends. So,managers understate the changes in dividends to betterassure that next year’s profit can cover the new dividends. However, next year’s net income also incurs somefluctuations, so it it is necessary to make some adjustments to dividends. As a result the process of dividendadjustment becomes permanent.The investigation of Brav et al. [6] also was devoted to theanalysis of payout policy, and included interviews with alarge number of CFOs. This research confirms the mainresults of Lintner’s work, but with some limitations. Thestudy carefully analyzed the existence of any target level inpayout decisions. The authors found that only 6% of CFOsdo not target dividends at all. However, in contrast toLintner’s work the majority of CFOs (approximately 40%)answer that their key target is dividends per share. Only28% try to target a dividends payout, and 27% of managers target dividends per share growth. This investigationshows that nowadays, targeting dividends per share is amore common practice than targeting payouts. Despite the fact that these results display some differences fromLintner’s one, they do not reject the hypothesis aboutexistence of dividend smoothing.

scholarly journals Korean Firms’ Share Repurchase Activities: Firm Characteristics, Financing and Investment

2020 ◽  
Vol 49 (5) ◽  
pp. 643-679
Author(s):  
Jin Park ◽  
Hyunseok Kim ◽  
Jungwon Suh
Keyword(s):  
Cash Flow ◽  
Firm Value ◽  
Univariate Analysis ◽  
Payout Policy ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Listed Firms ◽  
Internal Funds ◽  
Financing And Investment ◽  
Retained Earnings

This study examines Korean listed firms’ share repurchasing activities over the period 2006~2016 using the amount of net share repurchases from annual statements of cash flow. Korean firms use dividends rather than share repurchases as their primary payout method. Each year, the proportion of share repurchasing firms is lower than 20%, whereas the proportion of dividend-paying firms is around 70% or higher. Univariate analysis and Tobit regressions reveal that the incidence and amount of share repurchases increase with firm value, size, and cash flow. Our findings do not suggest that low valuations (or poor stock performance) or low debt ratios motivate share repurchases. Korean firms use primarily internal funds to finance share repurchases, as share repurchasing firms experience substantial increases in retained earnings. Share repurchasing firms do not invest less than other firms do, suggesting that share repurchases do not result in underinvestment. Compared to dividends, share repurchases are more positively associated with firm value. Compared to share repurchase, dividends are more positively associated with cash flow and financial maturity, but more negatively associated with stock return volatility. Finally, firms with high controlling shareholders’ ownership tend to choose dividends over share repurchases in their payout policy.

scholarly journals Signaling hypotheses of share repurchase – life cycle approach. The case of Polish listed companies

Equilibrium ◽  
2017 ◽  
Vol 12 (2) ◽  
pp. 245 ◽  
Author(s):  
Elżbieta Wrońska-Bukalska ◽  
Bogna Kaźmierska-Jóźwiak
Keyword(s):  
Life Cycle ◽  
Growth Stage ◽  
Value Added ◽  
Payout Policy ◽  
Free Cash Flow ◽  
Mature Stage ◽  
Share Repurchases ◽  
Life Cycle Approach ◽  
Share Repurchase ◽  
Financial Policies

Research background: Payout policy has attracted a great deal of research, how-ever it still has not been satisfactorily explained why corporations repurchase their shares. The most popular explanation for share repurchases is their signaling power. An alternative explanation for share repurchases is related to free cash flow. We assume that both theories are not competitive, due to the fact that the motives for share repurchases may differ depending on the firm’s life cycle stage.Purpose of the article: The aim of the paper is to test the hypotheses that companies in growth stage are more prone to repurchase their shares due to the their undervaluation.Methods: Our analysis focuses on 116 repurchase on WSE and 47 repurchase on NewCon-nect in Poland during the period 2004–2016 to test the hypothesis. We assume that companies listed on WSE are in their mature stage while listed on NewConnect are in the growth stage. We use market value to book the value ratio (M/BV) and the relation of M/BV ratio for the repurchasing company to the M/BV ratio for the whole market at the date of implementing share repurchase program as a proxies for firm valuation.Findings & Value added: Our study does not confirm that repurchased companies at a growth stage are more undervalued than repurchased companies at a mature stage (at statistically significant level), however there are more repurchased companies at a growth stage with lower M/BV value than repurchase companies in mature stage.  Adding corporate life cycle theory into the study, our result can contribute to the literature by more distinctly understanding the motivation of share repurchases. The results might be helpful for companies to determine their financial policies and for investors to determine their investment decisions.

scholarly journals Do Share Repurchases Distort Stock Prices? Evidence from the United States and Malaysia

2021 ◽  
pp. 232102222110243
Author(s):  
Chong-Meng Chee ◽  
Nazrul Hisyam bin Ab Razak ◽  
Bany Ariffin bin Amin Noordin
Keyword(s):  
Stock Prices ◽  
The United States ◽  
Jel Classification ◽  
Share Repurchases ◽  
Alternative Measure ◽  
Share Repurchase ◽  
Price Support ◽  
Global Finance ◽  
The Usa ◽  
Sample Support

Heavy share buyback years after the global finance crisis 2008–2009 drew criticism from scholars and financial press that share repurchases were being used by firms to manipulate their stock prices. This paper examines whether a greater firm’s repurchase intensity distorts stock prices reflecting to information. We analyse 2 sets of unbalanced panel data that contain a sample of 337 US and another sample of 167 Malaysian repurchasing firms between 2012 and 2016. Contrary to the criticism, we find that a greater firms’ share buyback intensity in the USA stimulates faster incorporation of information in price and results in more efficient stock prices. The main findings hold true and are robust when an alternative measure of share repurchase intensity was used. The findings of US sample support the notion that share repurchase serves as a signalling tool and price support to promote more efficient stock prices. We also find no strong evidence supporting the notion that shares repurchased by Malaysian firms distort stock prices. JEL Classification: G10, G14, G35

scholarly journals Share Repurchases: A Literature Review

2016 ◽  
Vol 8 (2) ◽  
pp. 1
Author(s):  
Sarthak Kumar Jena ◽  
Chandra Sekhar Mishra ◽  
Prabina Rajib
Keyword(s):  
Literature Review ◽  
Corporate Finance ◽  
Regulatory Framework ◽  
Earning Management ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Dividend Payment ◽  
Significant Growth ◽  
Alternative Method ◽  
The Usa

<p>Share repurchases evolved as an alternative method of payout and a corporate finance tool in 1950 in the USA. From 1980 to 2000 it has achieved a significant growth as compared to dividend payment by companies. Then, share repurchase is gradually spread to other countries like UK, Canada, etc.  Pertinent to its growing importance, over the years an enormous literature has emerged that deals with many facets of share repurchase. This article classifies and organizes literature in relations to the established hypotheses, determinants affecting share repurchase decisions, the effect of share repurchase on liquidity and earning management around share repurchase. In additions to the above, this article also analyses the regulatory framework of Indian buyback starting from 1998. It gives a brief view of sections of old Companies Act (1956) and new Companies Act (2013) dealing with buyback. This article also provides a snapshot of SEBI buyback regulations, 1998 and also accommodates all the amendments.</p>

scholarly journals The repurchase by a holding company of treasury shares held by subsidiaries: A South African perspective

2012 ◽  
Vol 43 (4) ◽  
pp. 33-44 ◽  
Author(s):  
N. Wesson ◽  
W. D. Hamman
Keyword(s):  
South African ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Annual Reports ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Financial Reporting Standards ◽  
Holding Company ◽  
Johannesburg Stock Exchange ◽  
The Uk

This study aims to establish whether the repurchasing of treasury shares by a holding company is a regular occurrence for companies listed on the Johannesburg Stock Exchange (JSE); whether these repurchasing companies have complied with the relevant legal and reporting requirements; and what their stated motivations were for these repurchases.In a sample of 251 companies listed on the JSE from 1999 till their 2009 financial year-end, 120 (47,8%) companies executed share repurchases. Thirty-six (30%) of the 120 companies repurchased treasury shares from their subsidiaries in 55 different transactions, representing 22% of the total number of shares repurchased.Companies which repurchase treasury shares do not always comply with the legal requirements (such as obligatory Security News Agency (SENS) announcements and circulars); and the accounting requirements of International Financial Reporting Standards (IFRS) (relevant to the disclosure of the reconciliation of the number of shares in issue) are applied in an inconsistent manner in annual reports. The most common reason for the repurchase of treasury shares was that the 10% limit (on treasury shares held by subsidiaries) had nearly been reached. Various business purposes were also given. Income tax implications did not seem to be a conclusive motivation for repurchasing treasury shares.The repurchase of treasury shares by the holding company is not allowed in most other countries, like the UK, and presents unique challenges to the South African share repurchase environment. More stringent application of the JSE Listing Requirements, as well as better guidance on the IFRS disclosure requirement on the reconciliation of the number of shares in issue, is needed in South Africa. This will enable stakeholders to make better-informed decisions and will also assist research on share repurchases.This material is based upon work supported financially by the National Research Foundation. However, any opinions, findings, conclusions and recommendations expressed in this article are those of the authors alone, and the NRF does not accept any liability in regard thereto.

scholarly journals Corporate Payout Policy and CEO Compensation Structure

2018 ◽  
Vol 8 (2) ◽  
pp. 179
Author(s):  
Lee-Hsien Pan ◽  
Thomas Barkley ◽  
Shaio-Yan Huang
Keyword(s):  
Ceo Compensation ◽  
Payout Policy ◽  
Free Cash Flow ◽  
Share Repurchases ◽  
Negative Effects ◽  
Total Compensation ◽  
Dividend Payout ◽  
Leverage Ratio ◽  
Compensation Structure ◽  
Investment Projects

This paper examines how corporate payout policy is affected by CEO compensation structure using data from more than 1,600 firms during 1992-2006. Specifically, it studies the effects of CEO compensation structure, firm characteristics, and dividend payout policies on dividend type and relative dividend size.It finds CEO salary is positively associated with cash dividends, share repurchases, and relative dividend size whereas CEO salary (compared to bonus) as a percentage of total compensation has negative effects on cash dividends and share repurchases. It also discovers CEO stock awards as a percentage of total compensation are positively associated with share repurchases and CEO option awards are negatively related to cash dividends.In addition, this paper shows larger firms and firms with more free cash flow distribute more cash dividends and share repurchases. On the other hand, firms with higher leverage ratio and more investment opportunities prefer to save earnings for future re-investment projects. Finally, it show dividend payout policy (either cash dividends or share repurchases) increases relative dividend size. The results of this study suggest that CEO compensation components affect CEOs’ dividend payout decisions: when CEOs’ stock award increases, they prefer to use share repurchases; when CEOs’ option award increases, they prefer not to use cash dividends.

scholarly journals Share buy-backs for a selection of JSE listed companies: An exploratory study

2010 ◽  
Vol 41 (4) ◽  
pp. 47-58 ◽  
Author(s):  
P. G. Bester ◽  
N. Wesson ◽  
W. D. Hamman
Keyword(s):  
South African ◽  
Listed Companies ◽  
Small Sample ◽  
Share Repurchases ◽  
Share Repurchase ◽  
News Service ◽  
Conducting Research ◽  
Repurchase Announcements ◽  
Buy Back ◽  
Selection Of

This study undertook to derive share repurchase trends from a small sample of JSE-listed companies over the nine years, 1999 – 2008. The study also draws attention to the particular obstacles to be overcome when conducting research into the unique South African share repurchases environment.The study finds that 33 companies made 71 repurchase announcements (47 general and 24 specific) via the Securities Exchange News Service (SENS) over the period July 1999 until financial year-end in 2008. On average, 59,0% of the total number of shares (and 49,3% of the total value) repurchased under a general authority is not included in the 3% SENS announcements. General share repurchases represent 47,9% of total repurchases in volume (and 60,5% in terms of value). The total number of shares repurchased (excluding share trust purchases) by the 33 companies shows that 56,8% were repurchased by subsidiaries and 17,1% were subsequent repurchases by companies from subsidiaries. (In value, these repurchases represent 53,7% and 17,2%, respectively.)This study therefore concludes that research based on only the 3% SENS announcements of general share buy-backs results in significant understating of actual total share buy-back activities, and that the South African share repurchase environment presents unique challenges. The main obstacle for future South African research in this field however is the lack of comprehensive and accurate share repurchase data as supplied by South African financial data sources.This material is based upon work supported financially by the National Research Foundation. Any opinion, findings and conclusions or recommendations expressed in this material are those of the authors and therefore the NRF does not accept any liability in regard thereto.

scholarly journals Share repurchases in the South African mining sector

2014 ◽  
Vol 45 (2) ◽  
pp. 1-14
Author(s):  
V. Vermeulen
Keyword(s):  
South African ◽  
Data Sources ◽  
Annual Reports ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Mining Sector ◽  
Holding Company ◽  
Monetary Value ◽  
News Service ◽  
Public Data

The purpose of this study was to obtain an overview of the share repurchase activities of companies listed in the mining sector of the JSE, and to determine the extent to which detail information of these share repurchases are available on public data sources such as SENS (Securities Exchange News Service - the office of the JSE that distributes all relevant company information electronically). The study focused on a period of 11 years, from July 1999 until the 2010 financial year-end. The annual reports of a sample of companies were analysed to determine the number of shares, as well as the monetary value of the shares that were repurchased. The SENS announcements were then scrutinised to determine the number of share repurchases recorded in the annual reports that were announced to shareholders. From a total of 55 share repurchase transactions, only 23 transactions were announced on SENS. The repurchase transactions were then further analysed in terms of the method used (general or specific repurchase), the repurchasing entity (company, subsidiary or share trust) and the subsequent sale of treasury shares from the subsidiary to the holding company. It was concluded that the majority of share repurchases are announced. However, if only companies with primary listings on the JSE areconsidered, 60% of share repurchases are not announced. The use of the general and specific methods are more or less equal for companies with primary listings on the JSE, but for companies with secondary listings on the JSE, 98% ofrepurchases are general. Of the specific share repurchases of companies with primary listings about 46% are not announced, but of the general share repurchases about 77% are not announced. Since share repurchases made bycompanies with secondary listings on the JSE were significant in terms of numbers and value, it changed the total statistics substantially from what it would be if only companies with primary listing on the JSE were considered. Even though about 85% of total share repurchases are announced, studies on share repurchases cannot rely on SENS announcements only, since this would exclude a significant portion of the repurchase activities of companies withprimary listings on the JSE (60%), and therefore lead to unreliable results.

Insiders' Tax Preferences and Firms' Choices between Dividends and Share Repurchases

2008 ◽  
Vol 43 (1) ◽  
pp. 213-244 ◽  
Author(s):  
Jim Hsieh ◽  
Qinghai Wang
Keyword(s):  
Stock Options ◽  
Institutional Ownership ◽  
Cash Flows ◽  
Payout Policy ◽  
Capital Gains ◽  
Stock Repurchases ◽  
Share Repurchases ◽  
Executive Stock Options ◽  
Insider Ownership ◽  
Prefer Stock

AbstractThis paper investigates whether corporate payout policy is associated with insiders' share holdings and their tax preferences. We find that insider ownership and the implied tax liabilities are positively related to a firm's propensity to employ share repurchases. Firms with higher levels of or greater increases in insider ownership prefer stock repurchases to cash dividends. This relation is more significant in years when dividends were more tax disadvantaged relative to capital gains. Our findings are robust to the endogeneity of insider ownership and the inclusion of various control variables such as firm size, permanence of cash flows, growth opportunities, institutional ownership, and executive stock options. Overall, our results suggest that personal tax considerations from insiders affect corporate payout decisions.

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