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Dividends and Dividend Policy

H. Kent Baker (Editor)
ISBN: 978-0-470-45580-7
552 pages
May 2009
Dividends and Dividend Policy (0470455802) cover image
Dividends And Dividend Policy

As part of the Robert W. Kolb Series in Finance, Dividends and Dividend Policy aims to be the essential guide to dividends and their impact on shareholder value. Issues concerning dividends and dividend policy have always posed challenges to both academics and professionals. While all the pieces to the dividend puzzle may not be in place yet, the information found here can help you gain a firm understanding of this dynamic discipline.

Comprising twenty-eight chapters—contributed by both top academics and financial experts in the field—this well-rounded resource discusses everything from corporate dividend decisions to the role behavioral finance plays in dividend policy. Along the way, you'll gain valuable insights into the history, trends, and determinants of dividends and dividend policy, and discover the different approaches firms are taking when it comes to dividends.

Whether you're a seasoned financial professional or just beginning your journey in the world of finance, having a firm understanding of the issues surrounding dividends and dividend policy is now more important than ever. With this book as your guide, you'll be prepared to make the most informed dividend-related decisions possible—even in the most challenging economic conditions.

The Robert W. Kolb Series in Finance is an unparalleled source of information dedicated to the most important issues in modern finance. Each book focuses on a specific topic in the field of finance and contains contributed chapters from both respected academics and experienced financial professionals.

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Acknowledgments.

PART I Dividends and Dividend Policy: History, Trends, and Determinants.

1. Dividends and Dividend Policy: An Overview.

Introduction.

Dividends and Dividend Policy: History, Trends, and Determinants.

Cash Dividends: Theoretical and Empirical Evidence.

Share Repurchases.

Other Distribution Methods.

Survey Evidence on Dividends and Dividend Policy.

Other Dividend Issues.

Conclusions.

References.

About the Author.

2. The Historical Evolution of Dividends.

Introduction.

A Historical Overview.

Corporations, Returns, and Dividends before 1800.

Dividends in the Nineteenth Century.

Dividends in the Twentieth and Twenty-First Centuries.

Conclusions.

References.

About the Author.

3. Trends in Dividends: Payers and Payouts.

Introduction.

Disappearing Dividends.

Reappearing Dividends. 

Conclusions.

References.

About the Authors.

4. Factors Influencing Dividends.

Introduction.

Firm Characteristics.

Market Characteristics.

Substitute Forms of Payout.

Conclusions.

References.

About the Authors.

5. Cross-Country Determinants of Payout Policy: European Firms.

Introduction.

Dividend Policies of European Firms.

Fraction of Dividends - Paying Firms. 

European Dividend Policy: Survey of Managers.

Conclusions.

References.

About the Authors.

PART II Cash Dividends: Theoretical and Empirical Evidence.

6. Dividend Irrelevance Theory.

Introduction.

Theories before Irrelevance.

MM’s Dividend Irrelevance.

The Impact of Market Imperfections.

Recent Challenges to Irrelevance.

Conclusions.

References.

About the Authors.

7. Residual Dividend Policy.

Introduction.

Conceptual Basis.

Macro Analysis of Dividend Behavior.

Inferences from Accounting Data and Market Reactions.

Survey Evidence.

Conclusions.

References.

About the Author.

8. Taxes and Clientele Effects.

Introduction.

Dividend Policy in a World without Taxes.

Dividend Policy in a World with Taxes.

Dividend Clienteles.

Tax Rate Changes and Dividend Policy. 

Dividend Taxation and Corporate Governance.

Conclusions.

References.

About the Authors.

9. Agency Costs and the Free Cash Flow Hypothesis.

Introduction.

Free Cash Flow Theory.

Empirical Tests of Free Cash Flow Hypotheses.

Conclusions.

References.

About the Author.

10. Asymmetric Information and Signaling Theory.

Introduction.

Signaling Models.

Empirical Evidence.

Future Directions of Research.

Conclusions.

References.

About the Author.

11. Behavioral Explanations of Dividends.

Introduction.

Theoretical Framework.

Empirical Evidence.

Conclusions.

References.

About the Author.

12. The Firm Life Cycle Theory of Dividends.

Introduction.

The Life Cycle Theory of the Firm.

Dividends in the Firm's Life Cycle.

Empirical Evidence.

Conclusions.

References.

About the Authors.

13. The Catering Theory of Dividends.

Introduction.

Baker and Wurgler's Catering Theory of Dividends.

Extensions to the Catering Theory of Dividends.

The Role of Catering in Explaining Other Dividend Theories.

Evidence from Empirical Studies.

Beyond Catering for Investors' Sentiments.

Why Do Investors' Preferences for Dividends Change over Time?

Conclusions.

References.

About the Authors.

PART III Share Repurchases.

14. Stock Repurchases: Theory and Evidence, Part 1.

Introduction.

Share Repurchase Methods.

Potential Motives for Share Repurchases.

Signaling and Undervaluation.

Conclusions.

References.

About the Authors.

15. Stock Repurchases: Theory and Evidence, Part 2.

Introduction.

Motives for Share Repurchase.

Empirical Results.

Cash Dividends versus Stock Repurchases.

Conclusions.

References.

About the Authors.

16. Stock Repurchases and Dividends: Trade-Offs and Trends.

Introduction.

Repurchases and Dividends: The Historical Record.

Measuring Repurchases.

Methods for Repurchasing Shares.

Repurchases versus Dividends: Trade-Offs and Trends.

Theoretical Models of the Repurchase Decision.

Repurchases and Valuation.

Conclusions.

References.

About the Author.

17. Beating the Market with Share Buybacks.

Introduction.

Anomalous Price Behavior around Repurchase Tender Offers.

Market Underreaction after Open-Market Buyback Announcements.

Private Repurchases and Long-Term Returns.

Beating the Market with Buybacks: From Theory to Practice.

Conclusions.

References.

About the Author.

PART IV Other DistributionMethods.

18. Special Dividends.

Introduction.

Historical Payment Patterns of Special Dividends.

The Information Content of Special Dividends.

Special Dividends and Share Repurchases. 

Conclusions.

References.

About the Authors.

19. Stock Splits, Stock Dividends, and Reverse Stock Splits.

Introduction.

Stock Splits.

Stock Dividends.

Reverse Stock Splits.

Implications for Investors.

Implications for Managers.

Conclusions.

References.

About the Author.

20. Dividend Reinvestment Plans.

Introduction.

Characteristics of DRIPs and Direct Stock Purchase Plans.

Strengths and Weaknesses of DRIPs: The Investor’s Perspective.

Motivations of Companies for Offering DRIPs.

Theories and Empirical Evidence on DRIPs.

Implications of DRIPs.

Future Research in DRIPs.

Conclusions.

References.

About the Author.

PART V Survey Evidence on Dividends and Dividend Policy.

21. Cash Dividends and Stock Repurchases.

Introduction.

Survey Research on Dividend Policy.

Survey Research on Share Repurchases.

Comprehensive Payout Survey Research.

Conclusions.

References.

About the Author.

22. Stock Splits, Stock Dividends, and Dividend Reinvestment Plans.

Introduction.

Overview of Dividend Policy and Firm Value.

Stock Splits.

Stock Dividends.

Dividend Reinvestment Plans.

Conclusions.

References.

About the Author.

23. Why Individual and Professional Investors Want Dividends.

Introduction.

Why Individual Investors Want Dividends.

Dutch and Greek Surveys.

Why Professional Investors Want Dividends.

Conclusions.

References.

About the Authors.

PART VI Other Dividend Issues.

24. Why Firms Begin Paying Dividends: Value, Growth, and Life Cycle Effects.

Introduction.

What Is Known about Dividends?

Sample Selection and Empirical Methodology.

Empirical Results.

Conclusions.

References.

About the Authors.

25. Dividend Policy and Corporate Governance.

Introduction.

Agency Theory and Relevance to Dividend Policy.

Shareholder Rights and Legal Environment.

Executive Compensation.

Managerial and Outside Blockholder Ownership.

Board Structure.

Conclusions.

References.

About the Authors.

25. Dividend Policy and Corporate Governance.

Introduction.

Agency Theory and Relevance to Dividend Policy.

Shareholder Rights and Legal Environment.

Executive Compensation.

Managerial and Outside Blockholder Ownership.

Broad Structure.

Conclusions.

References.

About the Authors.

26. Dividend Policy in Regulated Industries.

Introduction.

Literature Review.

Future Research.

Conclusions.

References.

About the Author.

27. Dividend Policy in a Global Perspective.

Introduction.

How Dividends Link to Corporate Control and Ownership.

Dividends, Politics, and Law.

Conclusions.

References.

About the Authors.

28. Dividend Policy in Emerging Markets.

Introduction.

Institutional Factors Influencing Corporate Payout Policies in EFMs.

Cross-Country Studies.

Individual Country Studies.

A Simple Empirical Analysis.

Conclusions.

References.

About the Authors.

Index.

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H. Kent Baker, PhD, CFA, CMA, is University Professor of Finance at the Kogod School of Business at American University, Washington, D.C. Before joining the faculty at American University in 1975, he held both faculty and administrative positions at Georgetown University and the University of Maryland. Baker has published extensively in leading academic and professional finance journals. He has consulting and training experience with more than 100 organizations, and has been listed in fifteen biographies, including Who's Who in Finance and Industry, Who's Who in the East, and Outstanding Educators of America.

Robert W. Kolb is the Frank W. Considine Chair of Applied Ethics and Professor of Finance at Loyola University, Chicago. Before this, he was the Assistant Dean, Business and Society, and Director, Center for Business and Society, at the University of Colorado at Boulder, and department chairman at the University of Miami. Kolb is also the author of over twenty books on finance, derivatives, and futures, and has authored numerous articles in leading finance journals.

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