Dividend Policies and Common Stock Prices

Walter, James E.

doi:10.1111/j.1540-6261.1956.tb00684.x

Cited by 73 publications

(31 citation statements)

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“…However, other researchers showed that valuation of stock depends essentially on the expected future dividends (Walter, 1956;Gordon, 1959Gordon, , 1962.…”

Section: Discussionmentioning

confidence: 99%

Dividend Policy in Tunisia: A Signalling Approach

Taleb¹

2018

IJEF

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The main objective of this study was to establish the stock price reaction to dividend announcements of firms quoted at the Tunisian Securities exchange (TSE). To do so, we develop a traditional event study. Two robust results emerge: First, when we observe the 196 announcements of dividends between years 1996-2004, the result is inconsistent with signaling theory, as long as, no abnormal return was observed on the announcement day (event period). Second, When the overall sample is divided into three sub-group (dividend increase, dividend-no-change and dividend), we observe a significant and abnormal return about -1.242 percent and -1.697 percent respectively on day D(t 0 -4) and D(t 0 +4) around the dividend announcement day (Dt 0 ) only for the sub-group of firms that decreases their dividend. This result corroborates prior research in Tunisian context [Ben Naceur and al. (2006);Guizani and Kouki (2011)] that confirm, by using a different approach, the Lintner"s (1956) conclusions which states that Tunisian" firms generally tend to avoid a dividend decrease (or cuts) and can constitute a supporting evidence of the dividend information content hypothesis in TSE.

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“…However, other researchers showed that valuation of stock depends essentially on the expected future dividends (Walter, 1956;Gordon, 1959Gordon, , 1962.…”

Section: Discussionmentioning

confidence: 99%

Dividend Policy in Tunisia: A Signalling Approach

Taleb¹

2018

IJEF

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“…Walter [2] also argued that stock prices are dependent upon the future dividends but in case of growth stocks low dividend payout or higher earning retentions enhance the value of the organization. Moreover, preferred tax rates on capital gains also implied that the capitalization of the organization increases with retained earnings.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Some studies found a strong impact of the retained earnings on the stock price such like Havkevy [10] who provided such evidence in case that retained earnings should accompany increase in the profitability of the firm. Walter [2] also provided that in case of growth firms the higher retained earnings and lower dividends increase the value of the firm. Miller & Modigliani [5] on the other hand suggested that the magnitude of retained earnings and dividends do not affect the value of the firm.…”

Section: Introductionmentioning

confidence: 99%

“…The foundations laid by Williams were explored by the early researchers. Some conformed the explorations of the Williams (Walter [2], Lintner [3], Friend & Puckett [4]), while others (see, Miller & Modigliani [5]) provided different views. The debate on the topic is still open despite the availability of so much literature and wide variety of models.…”

Section: Introductionmentioning

confidence: 99%

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Solving the Puzzle of Relative Importance of Dividends and Retained Earnings in Stock Valuation: A Case of Karachi Stock Exchange

Tariq¹,

Kharal²,

Abrar³

et al. 2014

TEL

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Despite the growing debate on the stock price valuation, it has become a complex puzzle. Various theories, models and explanations have been provided to solve this confusing riddle. This study contributes to this debate by determining the relative importance of stock dividends and retained earnings regarding stock price valuation in Karachi Stock Exchange. Data for the analysis of this study were collected from the 66 nonfinancial companies that were included in KSE-100 index for a period from 2007 to 2010. This study found the evidence that dividends are more important variable than the retained earning regarding the explanatory power of stock prices in Karachi Stock Exchange. Practical implications are also provided in the study.

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“…To that extent, the shareholder's gains (dividend) is the manager's loss (retained capital). A diligent review of dividend policy clearly identifies three key intellectually difficult-to-dissolve thoughts: first, high dividends increase market value because dividends are more certain than capital gains as the maxim says a bird in hand is worth more than a thousand in the bush (Lintner, 1956;Walter, 1956;Gordon, 1959). Second, it is not higher dividends but lower dividends that actually increase market value, as higher dividends reduce stock prices because taxable investors pay higher taxes on dividends than on capital gains (Brealey, 1981;Keown et al, 1997;Pandey, 2005).…”

Section: Relevant Theoriesmentioning

confidence: 99%

Comparative Analysis of Earnings Rate, Retention Rate, and Dividend Yield as Determinants of Capital Growth

Dagogo

Obara

State³

2015

IJEF

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This work compares the effect of earnings rate, retention rate, and dividend yield on the capital growth of Nigeria's emerging and large companies. The study begins with a detailed characterization of emerging companies in the Nigerian context, then, an extensive review of both theoretical and empirical studies surrounding dividend policy. Thereafter, three contextual arguments or positions were identified to provide the framework for divergence or convergence with the outcome of this work. The variables were also specified as follows: growth in equity capital (GEC), earnings rate (ER), retention rate (RR), and dividend yield (DY). Two procedures were adopted: z-test of two means, aimed at providing additional basis for predicting the outcome of our estimates. To do this, ten years time series data were collected from the annual financial reports of ten emerging and twenty large companies quoted on the Nigeria Stock Exchange, thus, pooling 100 data items for emerging companies and 200 data items for large companies. Then, the means of the respective variables for each size of company were compared, particularly, to establish any significant growth pattern explained later in the second procedure. The second procedure involves specification of panel data regression model with random effect, one for each of the two classes of companies. The results show statistically significant and consistent differences between the two categories of companies in the means of GEC and ER. Secondly, for the emerging companies, only RR significantly contributed to changes in GEC. Thirdly, for the large companies, none of the independent variables significantly explained changes in GEC. It was concluded that the study did not demonstrate any pattern in dividend/retention behavior in emerging or large companies that is consistent with any of dividend policy positions, leading us to conclude that no single dividend policy magic wand is a recipe for all managers at all times.

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Dividend Policies and Common Stock Prices

Cited by 73 publications

References 0 publications

Dividend Policy in Tunisia: A Signalling Approach

Dividend Policy in Tunisia: A Signalling Approach

Solving the Puzzle of Relative Importance of Dividends and Retained Earnings in Stock Valuation: A Case of Karachi Stock Exchange

Comparative Analysis of Earnings Rate, Retention Rate, and Dividend Yield as Determinants of Capital Growth

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