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Types of Dividends
Most dividends are paid in the form of regular cash payments
Firm can declare a share dividend (bonus share)
Firms are offering their shareholders a bonus share/dividend option
Share repurchase
on market versus off market transactions
dividends versus capital gains
taxes
Many firms offer dividend reinvestment plans

Measures of Dividend Policy
Dividend Payout = Dividends / Earnings
measures the percentage of earnings that the company pays in dividends
Dividend Yield = Dividends / Stock Price
measures the return that an investor can make from dividends alone
Both used empirically but they are not equivalent measures

Share Repurchase
A share repurchase
Firms buy back own stock
Distributes cash to existing shareholders in exchange for a fraction of the firm’s outstanding equity.
Either retire the shares or keep them as treasury stock available for re-issuance
Primary methods of stock repurchase:
Open market
The most common share repurchase method
Firm maintains the option of deciding whether, when, and how much to repurchase
Off market
Capital gains tax versus personal tax on dividends
Timing advantage in realizing capital gain

Determinants of Dividend Policy
Investment Opportunities : More investment opportunities  Lower Dividends
Stability in earnings: More stable earnings  Higher Dividends
Alternative sources of capital: More alternative sources  Higher Dividends
Constraints : More constraints imposed by bondholders and lenders  Lower Dividends
Target dividend payout: Surveys suggest in excess of 60% of firms have a target payout
Signaling Incentives : More options to supply information to financial markets  Lower need to pay dividends as signal
Shareholder characteristics : Older, poorer stockholders  Higher dividends

Dividends are Disappearing in the US (Fama and French 2001)
Dividends and Share Repurchases Gullon and Michaely (2002)

Dividends are Sticky Lintner (1956)
Dividend Tend to Follow Earnings Lintner (1956)
Dividend Policy Varies Across Countries Fan, Schultz and Twite (2009)
Price Change, Dividends and Taxes
Cashflows from Selling Around Ex-Dividend Day

Empirical Evidence
US
Prior to introduction of income tax - ex dividend day drop off of 100% of dividend
Average price drop off of 90% of dividend
Elton and Gruber (1970)
Australia
Prior to dividend imputation - ex dividend day drop off of 75% of dividend
Brown and Walter (1986)

A Question
Is this a measure of relative capital gains and dividend taxes (tax preferences) or is it a statement of the ex-dividend trading behaviour of taxable and tax-exempt investors?
Barone-Adesi and Whaley (1986)
Ex-divdend day price decline in call options is close to one

Risk and Investor Preferences
Adjusting for risk
Include dividend yield in addition to risk adjustment
A positive and significant dividend yield coefficient
Time varying risk correlated with dividend yields
Weight by composition of investors – no one representative investor
Impediments to trades
Spurious correlation

An Alternative Approach: Changes in Tax Rules
UK
Firms changed dividend policy consistent with chan本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。