published_or_final_version / Management Studies / Master / Master of Business Administration

published_or_final_version / abstract / toc / Business / Doctoral / Doctor of Philosophy

published_or_final_version / Statistics and Actuarial Science / Master / Master of Philosophy

We examine the phenomenon of firms that distribute dividends in excess of reported earnings, that is, 'unsustainable dividend-payers' in the Swedish market. Our hypothesis is that these firms will experience lower abnormal returns compared to their counterparts in both short and long term. With a dataset of 2061 observations from Nasdaq Stockholm and Nordic Growth Market during the period 1999-2017, we find that the abnormal returns are higher for unsustainable dividend-payers in the short term, while in the long run the result is on the opposite. Moreover, we find that the larger the difference between dividends paid and reported earnings, the higher the short-run abnormal returns but the lower the long-run abnormal returns to shareholders. Our results are robust to controlling for influences of other events on announcement dates and alternative measurement for model parameter, though not unambiguous. This study contributes to broadening the area of unsustainable dividends, which is perceived as a hot topic. It may be of interest to both individuals and institutions, who often have a longer-term perspective on their investments.

A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand in partial fulfilment of the requirements for the degree of Master of Commerce in Finance. Johannesburg, South Africa March 2016 / The study examined whether: share repurchase events and changes in dividends were good predictors of future changes in earnings. The research also investigated how the South African market reacted to share repurchase events in the short-run. Using INET BFA, data for 226 dividend paying companies and 55 share repurchasing companies, trading on the JSE during the period 2003 to 2013, was collected. Dividend theory suggests that changes in dividends convey information content about the future earnings of the firm. After testing this theory, limited support was found for this notion. Firms that had increased dividends at (T0) showed significant earnings increases in that year. Nonetheless, some of the dividend increasing firms showed no subsequent unexpected earnings growth at (T1) and (T2). While the size of the dividend increase had a strong positive relationship with current earnings; it failed to predict future earnings with any consistency. Firms that had cut dividends at (T0) experienced a reduction in earnings in that year but showed increases in earnings at (T1). However, consistent with Lintner‘s (1956) model on dividend policy, firms that had increased their dividends were less likely to experience a reduction in earnings, as opposed to the no-change or dividend decrease groups. A linear regression model was employed in testing whether share repurchases were useful in predicting changes in future earnings. According to the results reported in the regression model, share repurchases are a good predictor of future changes in earnings. The study at hand then went on to explore how the South African market reacted to share repurchases. Through the utilisation of the Market Model-Event Study Methodology (with an event window of 41 days, 20 days prior and 20 days post the event), the findings of the report indicated that the South African market reacted positively to share repurchases. This was evidenced through positive: share price returns, abnormal returns and average abnormal returns, post the event. Nonetheless, cumulative average abnormal returns remained negative in the short-run. In addition, the results showed that firms engage in share repurchase activities in order to signal that the stock is undervalued. There was an observable trend of declining share prices before the share repurchase event. A few recommendations were proposed following the results obtained. Dividends are unable to predict changes in earnings. Therefore, a dividend cut, is not an indication that a company‘s earnings will decrease in the future or that the managers of that company foresee a decline in future earnings. From a share repurchase point of view, managers of JSE listed companies should not only focus on the short-term benefits of share repurchase events. These benefits are generally short lived as shares do return to their falling state, however authors such as Wesson, Muller and Ward (2014) have shown that the benefits of share repurchase events can also be observed in the long- run, A further point to note for both investors and managers of JSE listed companies is that share repurchases are a good predictor of future earnings. Therefore, it is very confusing for investors when a company announces a share repurchase event but does not follow through with it. / MT2017

Thesis (M.Com. Taxation) -- University of Witwatersrand, Faculty of Commerce, School of Accountancy, 2014. / The taxation of dividends at shareholder level has been the norm in the majority of the international market. South Africa is a developing country that is constantly increasing its market share in the international stage and in order to be more competitive in the international market South Africa has to align itself with international norms and practices and this resulted, amongst other things, with the introduction of dividends tax in 2012. This study analysed the new dividends tax legislation that became effective on 1 April 2012 in South Africa, by way of a normative literature review, and briefly discusses how South Africa compares with Russia, India and China, three other developing countries. The literature review confirmed the benefits with regards to the dividends tax system; however, the review also confirmed that there are challenges within the dividends tax system. The benefits of the dividends tax system that were noted include amongst others; aligning South Africa with international tax norms, the increased tax base and the establishment of a familiar withholding tax system that can attract more foreign investment. The levying of dividends tax on beneficial owners results in an increased tax base because the number of taxpayers increases to companies and individuals, versus levying secondary tax on companies only on the companies paying the dividend. Some of the challenges of the dividends tax system are the administrative burden placed on companies and regulated intermediaries, the rate of 15% might be considered to be too high in comparison to other developing countries and the taxation of dividends in the hands of the individuals might be a disincentive to invest in equity shares. South African legislation on dividends tax differs from that of China; with the latter country taxing the dividends in the hands of the beneficial owners without a requirement on company‘s paying the dividend to withhold the dividends tax. The Russian legislation on taxation of dividends is similar to that of South Africa but taxes the dividend on the net amount. In India the dividend distribution tax is levied in the company making a dividend distribution.

Do ponto de vista financeiro, o objetivo de uma empresa é promover a maximização da riqueza econômica dos seus acionistas. Por essa lógica, uma decisão de investimento só deve ser aceita se o retorno oferecido pelo projeto superar o custo do capital nele empregado. Nas decisões de financiamento, busca-se atingir a estrutura ótima de capital da empresa, que leve a minimização da média ponderada dos custos de capital da companhia e, consequentemente, à maximização da riqueza do acionista. Mas, ao contrário das decisões de investimento e de financiamento, as decisões de dividendos não possuem como princípio norteador um único parâmetro a ser seguido, já que diversos fatores financeiros, legais, fiscais e até mesmo comportamentais afetam essa decisão. A literatura de finanças apresenta um modelo para a decisão de dividendos chamado de Modelo de Dividendos Residuais (MDR). Nele, o percentual de dividendos a ser distribuído é determinado com base no lucro líquido contábil, no índice alvo de capital próprio da empresa e no orçamento de capital. No entanto, além de não priorizar a maximização da riqueza do acionista, entende-se que o MDR deixa de contemplar algumas importantes variáveis que deveriam ser levadas em consideração no momento da definição payout de dividendos, conforme preconizado pela literatura de finanças. Neste trabalho, foi realizada uma pesquisa empírica que verificou se, na prática, os gestores das companhias brasileiras de capital aberto levam em consideração os diversos fatores apresentados pelos estudos acadêmicos como sendo fundamentais para as decisões de dividendos. Em seguida, foi proposto um modelo conceitual de apoio ao processo de tomada de decisão de destinação dos lucros que leva em consideração fatores como a geração de valor econômico ao acionista, as particularidades legais e tributárias brasileiras, o poder de distorção da inflação na formação do lucro contábil, a estrutura ótima de capital da empresa, a existência de projetos futuros com valor presente líquido positivo, o fluxo de caixa livre para o acionista, entre outros. Esse modelo tem como objetivo oferecer um mapa decisorial conceitual mais abrangente do que o MDR e espera-se que forneça um parâmetro mais adequado para as decisões de dividendos por parte dos gestores empresariais brasileiros. / From the financial management point of view, the objective of a company is to promote the maximization of their shareholders economical wealth. So, an investment decision could only be accepted if the return on this investment surpass the capital spend to generate it. In financing decisions, the goal is to achieve the companys optimal capital structure leading to the minimization of the weighted average cost of capital of the company, consequently, the maximization of the shareholder wealth. But, unlike the investment and financing decisions, the dividends decisions do not have as a guiding principle a single parameter to be followed, since several financial, legal, fiscal and even behavioral factors affect this decision. The financial management literature presents a model of dividends decisions called Residual Dividend Model (RDM), a model in which the percentage of dividends to be shared is determined based on accounting net profit, on the equity target measure and on the capital budget. However, besides not to prioritize the maximization of the shareholders wealth, it is understood that the RDM fails to address some important variables that should be taken into account when setting the dividend payout, as showed by the financial management literature. The present study aimed to verify by an empirical research whether the managers of Brazilian public companies take into account the various factors presented by academic studies as being essential for the dividend decisions. And then it was proposed a conceptual model to support the decision making process for the profit destination which takes into consideration factors such as economic value to shareholders, the particularities of Brazilian legal and tax systems, the distortion caused by the inflation in the accounting profit, the optimal capital structure of the company, the existence of future projects with positive net present value, free cash flow to shareholders, among others. This model aims to provide a decision map concept wider than the RDM and it is expected to provide a more appropriate parameter for the dividends decisions by the Brazilian business managers.

Problem: Stock repurchases, and dividends have been a topic of academic interest for decades. Researchers have been trying to understand the determinants of payout policies and the conjunctural relationship between dividends and repurchases. That is, under which circumstances is one preferred over the other. In this paper, we make an attempt to contribute to the already existing research on the area. For this purpose, we study a specific period in time when a tax reform was enacted. That way we hope to obtain information on the payout policy that companies choose, and how the taxes influence these Purpose: In this paper our aim is to find out, by using a sample of quarterly data prior and after the implementation of the 2012 (enacted in 2012 and put into effect in January 1, 2013) tax reform (four quarters prior and four quarters after), whether the payout policies are affected by the changes in the dividend and/or the capital gain tax. This may, in turn, reveal information about the dividends and repurchases and how corporations choose to respond to adjustments in taxes as explained by the dependent variables. Method: We perform multinomial logistic, fixed and random effects regression analyses to the quarterly data of companies listed on the United States stock market benchmark index, the S&P 500. We use descriptive statistics and theoretical fundamentals to establish a relationship between the dividends and repurchases policies, as the changes in the tax code come to effect. Results and Conclusion: Despite the size of the sample, we found that firms tend to prefer; 1) to do a combination of dividend and repurchases, and 2) when taxes increase, there is a positive effect on dividend, and that repurchases are preferred over dividends.

A política de dividendos é um tema amplamente pesquisado no Brasil e no mundo ao longo de várias décadas. Consequentemente, inúmeras teorias foram desenvolvidas para explicar esse assunto. Contudo, recentemente, o arcabouço da Teoria de Agência tem proporcionado novas descobertas sobre os fatores que influenciam as políticas de dividendos das empresas. Especificamente, foram propostas teorias que sugerem que os dividendos refletem boas práticas de governança corporativa, tornando a distribuição de proventos um complemento à proteção legal do acionista. Em contrapartida, em um ambiente com proteção mais fraca e regras menos rígidas de governança, a distribuição de dividendos atua de maneira substituta à essa carência de proteção. No Brasil, devido às características legais mais frágeis quando comparada com mercados como o Norte Americano e do Reino Unido, seria esperado uma situação na qual os dividendos fossem substitutos à proteção oferecida pelos padrões de governança. Entretanto, pesquisas relacionadas à América Latina, aos mercados emergentes e, mais especificamente, ao mercado brasileiro, têm apontado para situações diferentes do que é apontado pela teoria, mas não de maneira unânime. Além disso, considerando o ambiente institucional brasileiro, de elevada concentração de propriedade, estudos anteriores não conseguiram determinar de que forma esse fenômeno influencia a política de dividendos das companhias. Assim, para contribuir com essa discussão, este trabalho investiga conjuntamente como a governança corporativa e a concentração de propriedade afetam as políticas de dividendos das empresas brasileiras. Esta pesquisa abrangeu 171 empresas no período de 2008 a 2017. De maneira inédita, foi utilizada como variável dependente o valor total dos dividendos dividido pelo patrimônio líquido. Os resultados das estimações por efeitos fixos com erros-padrão robustos por empresas mostraram uma relação positiva entre as proxys para governança corporativa e concentração de propriedade com a distribuição de dividendos. Como contribuições adicionais, foi mostrado que os resultados da estimação com a variável dependente dividendos pelo patrimônio líquido são melhores que os resultados da estimação com a variável dependente payout. Também foi identificado que a propriedade dispersa e altamente concentrada afetam positivamente e de maneira mais intensa a distribuição de dividendos, em comparação com outros níveis de propriedade do maior acionista / The dividend policy is a widely researched topic in Brazil and the world over several decades. Consequently, numerous theories have been developed to explain this subject. However, recently, the Agency Theory framework has provided new insights into the factors that influence corporate dividend policies. Specifically, theories have been proposed that suggest that dividends reflect good corporate governance practices, making the distribution of proceeds a complement to shareholder legal protection. On the other hand, in an environment with weaker protection and less rigid rules of governance, the distribution of dividends acts in a substitute way to this lack of protection. In Brazil, due to the more fragile legal characteristics when compared to markets such as the United States and the United Kingdom, a situation in which dividends would be a substitute for the protection offered by governance standards would be expected. However, research related to Latin America, emerging markets and, more specifically, the Brazilian market, have pointed to different situations than is pointed out by theory, but not unanimously. Moreover, considering the Brazilian institutional environment, with a high concentration of ownership, previous studies have not been able to determine how this phenomenon influences the companies\' dividend policy. Thus, to contribute to this discussion, this work investigates jointly how corporate governance and concentration of ownership affect the dividend policies of Brazilian companies. This survey covered 171 companies in the period from 2008 to 2017. In an unprecedented way, the total amount of dividends divided by shareholders\' equity was used as the dependent variable. The results of fixed-effect estimate with robust standard errors by companies showed a positive relationship between the proxies for corporate governance and concentration of ownership with the distribution of dividends. As additional contributions, it was shown that the results of the estimation with the dependent variable dividends by the equity are better than the results of the estimation with the dependent variable payout. It has also been identified that dispersed and highly concentrated ownership positively and more sharply affect the distribution of dividends as compared to other ownership levels of the largest shareholder

Since the dividend irrelevance theory of Miller and Modigliani (1961), academics and practitioners still have little understanding of the managerial incentives underpinning dividend policy. Black (1976) observed, “The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just don’t fit together.” <br /> <br /> This thesis aims to shed additional light on the dividend puzzle. Accordingly, two theoretical models have been developed to help explain why firms pay dividends or repurchase their own shares. The models consider the case in which the managers of a high-quality firm (firm H) and a low-quality firm (firm L) choose to use corporate cash flows to pay dividends, repurchase shares, or invest in a real project from which they can earn private benefits. I focus on the case in which firm H has a positive NPV project whereas firm L has a negative NPV project. <br /> <br /> In the first model, developed in spirit of Isagawa (2000), I show that paying dividends is a dominated strategy for firm H, regardless of the managerial weight parameter. If the manager is myopic, firm L will choose to repurchase shares at the detriment of existing shareholders. If the manager is farsighted, on the other hand, firm L will choose to pay dividends. I also consider the case in which investors are irrational in that they do not update their beliefs upon observing one firm repurchasing shares while the other firm paying dividends. The model shows that, in inefficient market, firm L will not mimic given that firm H repurchases shares since it cannot obtain any benefit from doing so. <br /> <br /> In the second model, built on Fairchild and Zhang’s (2005) work, in which the managerial payout decisions depend on the relative magnitudes of dividend and repurchase catering premia, I demonstrate that a myopic manager of firm H may pass up a positive NPV project in order to cater to investor demand for dividends or share repurchases (an adverse selection problem). In addition, I show that the agency cost of free cash flow can be mitigated if the dividend-catering premium is sufficiently high. That is, firm L’s manager will have a strong incentive to return excess cash to shareholders rather than invest it in a negative NPV project. <br /> <br /> Then, I investigate dividend changes in Thailand over the period 2002-2005. To test the signalling and free cash flow hypotheses, I first analyse profitability changes around dividend changes and benchmark them with control firms, and examine the relation between dividend changes and the past and future profitability. Consistent with Benartzi et al.’s (1997) evidence in the U.S., dividend changes in Thailand do not signal future profitability but rather the past performance. Then, I examine the determinants of dividend changes and firm’s decision to change dividends. I also investigate the short-run and long-run stock price performance of dividend-changing firms, and the relation between announcement returns and hypothesised independent variables. Finally, I examine firms’ investment behaviour following dividend changes. The results do not support the view that dividend changes signal future profitability. Overall, the findings are broadly consistent with the free cash flow hypothesis rather than the signalling hypothesis. <br /> <br /> Additionally, I provide preliminary evidence on open-market share repurchases (OMRs) in Thailand over the period December 2001 to January 2007. I find that stock prices react positively to OMR announcements and continue to increase in the longer term, suggesting that stock market underreacts to the signal conveyed by the managers of repurchasing firms. Comparing the actual repurchase cost with the costs of benchmark portfolios, I find that the actual repurchase cost is the lowest. This finding suggests that the managers of repurchasing firms have substantial ability to time the market.