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We use a sample survey to analyse the capital-budgeting practices of Australian listed companies. We find that NPV, IRR and Payback are the most popular evaluation techniques. Real options techniques have gained a toehold in capital budgeting but are not yet part of the mainstream. Discounting is typically by the weighted average cost of capital, assumed constant for the life of the project, and with the same discount rate across divisions. The WACC is usually based on target weights for debt and equity. The CAPM is widely used, while other asset pricing models are not. The discount rate is reviewed regularly and is updated as conditions change. In most companies, project analysis takes no account of the value of imputation tax credits. Australian corporate practice is generally consistent with the practice of Australian price regulators, except that regulators take into account the value of imputation tax credits when computing the cost of capital.

What is the market value of a dollar of fully franked dividends? We address this question by exploiting a new phenomenon in the Australian capital market Ðthe trading of shares cum-dividend during the ex-dividend period. This allows a relatively clean measurement of the combined value of dividends and the associated tax effects net of transactions costs. Consistent with the theoretical model that we develop, the evidence from this sample is that one dollar of fully franked dividends, after tax effects and transaction costs, is worth significantly more than one dollar. We also show that, in contrast to our measure, the traditional measure of the ex-dividend price drop-off, based on close to close prices, has a lower average value and exhibits substantially more cross sectional variation.

Australian residents are tax-advantaged, relative to American investors, in their access to imputation tax credits on Australian stocks. This paper provides evidence consistent with a difference in dividend valuations between Australian stocks and their American Depositary Receipts (ADRs). The ex-dividend drop-off ratio is lower for ADRs relative to their underlying Australian stocks and this difference is most pronounced for stocks that have imputation tax credits and high dividend yields. Consistent with dividend capture trading in the Australian market, the difference in drop-off ratios is driven by both temporarily higher Australian cum-prices and temporarily lower Australian ex-prices. Abnormal trading volume about the ex-day is present in both markets and in the Australian market the abnormal volume is greater for dividends with imputation tax credits. Dividend-related trading leads to price differences across the markets on the ex-dividend day. Price differences are also observed when the stock and the ADR trade with different dividend entitlements due to different ex-dividend dates.

INTRODUCTIONEver since the publication of Miller and Modigliani's 1961 paper, dividend policy has been a controversial topic in the literature of finance. This paper presents empirical evidence relevant to one area of the controversy, the relationship between dividend, investment and financing decisions. The empirical evidence is based upon the results of a questionnaire survey which was used to elicit senior managers' perceptions of the dividend policies of 93 large Australian companies.' Previous research in this area has largely relied on econometric analysis of published financial data. The questionnaire approach therefore presents a marked contrast to the previous work, providing an opportunity to examine the perceptions of those managers who actually formulate dividend policy. There have been previous surveys of dividend policy (Lintner, 1956;Plattner, 1969;and Harkins and Walsh, 1971), but these studies provided relatively little information about the relationship between dividend, investment and financing decisions, and there was no testing of responses for statistical significance.The paper is organised in the following way, first, the possible relationships between dividend and investment policies are examined and arguments are advanced in support of the proposition that the dividend decision will be nonresidual and usually independent of the investment decision. This is followed by a discussion of the method adopted to investigate this proposition together with an analysis of the questionnaire results. DIVIDEND INVESTMENT AND FINANCING POLICIESDividend payments are but one element in a system of interacting financial decisions. The over-riding constraint on all decisions is the funds flow identity 53 1 532 PARTINGTON managers can only make decisions about the resources which are available to them. The funds flow identity, that sources of funds must equal uses of funds, may be expressed as:A & + Di = AS, + ABi + K where: A I, = Net change in investment in period t AS, = Net change in external equity finance in period t AB, = Net change in debt finance in period t 0, = Dividends in period t V; = Earnings in period t

We examine the effect of rating history and the passage of time on the rating migration hazard for corporate debt issuers. Controlling for industry effects and the evolution of business and political cycles, the results consistently show that the next change of rating depends more strongly on rating history than it does on the current rating. However, there are significant interactions between the main effects of rating history and the duration of the current rating. The result is substantial decay in the effects of rating history the longer a rating remains unchanged. This decay effect is stronger for downgrades and for ratings in the speculative category.

The motives for takeovers in the UK are investigated by examining the correlations between wealth gains for the target and both acquirer wealth gains and total wealth gains. The results are sensitive to whether the gains are measured over a long or short window, the method of measuring abnormal returns, and whether controls are included for the form of the bid consideration and the sign of total bid gains. There is evidence of bids motivated by synergy, but there is also evidence of the presence of hubris and weak evidence of bids with an agency motivation. Once controls for bid consideration and the sign of total gains are introduced the explanatory power of the models increases substantially and diversity of results about bid motivation also increases. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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