PurposeThe purpose of this paper is to empirically analyse the propensity to pay dividends and investigate whether the catering theory is valid in an emerging market.Design/methodology/approachThe sample of this study comprises listed firms on the stock market of Turkey, Borsa Istanbul, with 2,438 observations during the period 1999–2015. In line with previous studies in the literature, appropriate control variables are used that may have an impact on Turkish firms' dividend policy. Control variables are examined in the likelihood of paying dividends by using Fama–Macbeth (1973) style cross-sectional logistic regressions. In addition, the linkage between the dividend premium and the propensity to pay is revealed to test the validity of the catering theory.FindingsThe findings of the study confirm the tenets of the catering theory for Turkey. When a positive dividend premium exists, that is when investors demand dividend, firms cater them and distribute dividend; on the contrary, when there is no demand, firms prefer not to pay. The effect of catering incentives on the dividend policy provides useful information for managers because the catering theory claims that investors' demand for dividends has an impact on the valuation of firms.Originality/valueIn the aftermath of the 2001 financial crisis, Turkey implemented far-reaching reforms and policy initiatives to improve the efficiency of capital markets and to overcome the obstacles sourcing from their culture and civil law origin. With the adoption of these major economic and structural reforms, as a civil law origin country, Turkey has managed to ameliorate the protection of investors as in common law countries. Ferris et al. (2009) state that the catering theory is applicable to firms in common law countries but not in civil law countries. In addition, prior research is not so extensive regarding the impact of catering incentives on the dividend policy of firms in emerging markets. The results of the analyses suggest that the catering theory is valid for Turkey as a civil law origin emerging country, and to the best of authors' knowledge, this study is the first to test the catering theory in the Turkish capital markets.
This paper investigates the influence of illegal corporate behaviour on the stock performance of Turkish listed firms. The sample covers all firms traded in Borsa Istanbul between the years 2007 and 2016. The sample of firms violating laws are collected from Capital Market Board of Turkey weekly bulletins. In total 101 cases of violation are detected for 72 firms. Relevant stock price and benchmark index price data is collected from Thomson Reuters DataStream. For the analysis, event study methodology is used. Event methodology is suitable to examine the impact of an event on the stock price of a firm.Consistent with prior studies in this field originated from US markets and proliferated in other developed markets and emerging markets, the results of this study demonstrate the evidence of a negative effect of the announcement on the stock price of firms that conducted an illegal behaviour. Specifically, we find that risk-adjusted average abnormal returns of firms violating laws are significantly negative on the event day. In addition, for the 11-day event window cumulative average abnormal returns are significantly negative. Two other longer event windows, 21-day and 41-day, display similar results. This confirms that investors in Turkey penalize illegal corporate actions like their counterparts in other countries.
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