Does managerial reluctance of dividend cuts signal future earnings?

Lin, James Juichia; Lee, Cheng Few

doi:10.1007/s11156-020-00899-5

Cited by 14 publications

(11 citation statements)

References 36 publications

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“…This finding is in line with signaling theory (Bhattacharya, 1979) and demonstrates that enterprises attempt to maintain dividends at the levels from previous years, even when their profitability increases. In other words, enterprises smooth out dividends to send a positive signal to the market about their financial performance (Lin & Lee, 2021;Huang et al, 2022). Note: *, **, *** denote statistical significance at the 10%, 5%, and 1% level, respectively.…”

Section: Resultsmentioning

confidence: 99%

ESG performance and dividend stability of the world’s largest enterprises

Matuszewska-Pierzynka,

Mrzygłód,

Pieloch-Babiarz

2023

JEMI

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PURPOSE: Theoretical and empirical research on corporate sustainability focuses on the relationship between environmental, social, and governance (ESG) performance and profitability or market value; little attention is given to describing their effect on dividend policy. Therefore, the main purpose of this paper is to address the research gap by identifying the relationship between corporate sustainability performance and the stability of dividend payouts. To achieve this goal, we formulated a general research hypothesis that there is a positive link between an enterprise’s ESG performance and its propensity to pay stable dividends. This research hypothesis is operationalized by the following five specific hypotheses: (1) the link between the overall ESG score and the propensity to pay stable dividends is positive; (2) the link between the environmental pillar score and the propensity to pay stable dividends is positive; (3) the link between the social pillar score and the propensity to pay stable dividends is positive; (4) the link between the governance pillar score and the propensity to pay stable dividends is positive; (5) the link between the ESG controversies score and the propensity to pay stable dividends is positive. METHODOLOGY: The hypothesis was empirically verified using a logistic regression model among the world’s largest non-financial enterprises listed in the Global 500 of 2021 for the years 2012–2021. The specifications of the general model include sustainability variables such as environmental, social, and governance pillar scores, as well as the ESG controversies score, which measures an enterprise’s exposure to environmental, social, and governance controversies and negative events reflected in global media. The financial ratios, such as a return on assets, current ratio, and debt-to-equity ratio, are considered control variables in the model specifications. The research was extended by implementing descriptive statistics and Pearson correlation coefficients. All required financial and sustainability data were retrieved from the London Stock Exchange Group (LSEG) Eikon database. FINDINGS: The results of the estimation revealed that: (1) the effect of integrated ESG activities on payout stability is statistically significant and negative only in model specifications without the ESG controversies; (2) the effect of the environmental dimension is statistically significant and negative only when other particular ESG pillars are not considered; (3) the effect of the social dimension is statistically significant and negative, only when the governance dimension and the ESG controversies are not considered together in the same model specification; (4) the effect of the governance dimension is statistically significant and positive only if other particular pillars are considered together in one model specification, both with and without the ESG controversies; (5) the effect of the ESG controversies is statistically significant and positive in each model specification. Therefore, the general research hypothesis cannot be confirmed because only the fifth specific research hypothesis can be positively verified in all model specifications. IMPLICATIONS: Further research should be conducted on the relationship between corporate sustainability performance and dividend policy. It should consider not only commonly applied ESG scores but also the ESG controversies score, which was statistically significant in this research. Governments and international organizations should cooperate with companies that provide ESG data to make ESG scores, including the ESG controversies score, publicly available to all stakeholder groups, which would help to reduce the information gap. Managers should pay more attention to increasing the visibility of ESG initiatives from the perspective of risk, which they allow to avoid controversies in particular corporate sustainability dimensions. ORIGINALITY AND VALUE: The value added of this paper is that it investigates the relationship between ESG performance and payout policy, which was not thoroughly explored in previous studies, especially in the context of an enterprise’s controversial ESG activities. To fill the research gap in the literature, the authors incorporated the ESG controversies score as an independent variable in the model specifications, which is a novelty in research on dividend policy.

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Section: Resultsmentioning

confidence: 99%

ESG performance and dividend stability of the world’s largest enterprises

Matuszewska-Pierzynka,

Mrzygłód,

Pieloch-Babiarz

2023

JEMI

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“…This finding is in line with signaling theory (Bhattacharya, 1979) and demonstrates that enterprises attempt to maintain dividends at the levels from previous years, even when their profitability increases. In other words, enterprises smooth out dividends to send a positive signal to the market about their financial performance (Lin & Lee, 2021;Huang et al, 2022). As for the second control variable, the results given in Table 7 show that the propensity to pay stable dividends decreases as liquidity increases.…”

Section: Methodsmentioning

confidence: 97%

“…The literature on the determinants of dividend payments is extensive and examines various fundamental factors that describe a company's financial condition (Dewasiri et al, 2019;Benlemlih, 2019;Siladjaja & Anwar, 2020;Lin & Lee, 2021;Huang et al, 2022), especially in terms of liquidity (Bilyay-Erdogan et al, 2023), financing structure (Aivazian et al 2003;Michael, 2013;Chang, Kang, & Li, 2016;Adjaoud & Hermassi, 2017;Benlemlih, 2019), size (Denis & Osobov, 2008;Matos et al, 2020), and age (Benlemlih, 2019). Another stream of the literature is built upon the assumption that the institutional environment in which an enterprise operates can influence internal decisions regarding the payout policy (Aivazian et al, 2003;La Porta et al, 2000).…”

Section: Literature Reviewmentioning

confidence: 99%

“…On the other hand, a high dividend level, which is related to higher ESG scores, sends a positive signal to the market (Bhattacharya, 1979) and shows that financing ESG activities for particular stakeholder groups does not harm an enterprise's profitability (Stubbs & Rogers, 2013). Enterprises aim to smooth out dividends and still pay them out when profitability decreases, which signals their good financial standing and high future performance (Lin & Lee, 2021;Huang et al, 2022).…”

Section: Introductionmentioning

confidence: 99%

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Untitled

2023

JEMI

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The JOURNAL OF ENTREPRENEURSHIP, MANAGEMENT AND INNOVATION is an interdisciplinary, double blind-reviewed journal, emphasizing theoretical and empirical articles in entrepreneurship, management, innovation and related fields. The journal is published both in printed form and on-line at www.jemi.edu.pl. THE ENTREPRENEURSHIP AREA OF THE JOURNALThe entrepreneurship area of the journal covers the three major topics: 1) venture creation and small business, 2) the impact of entrepreneurship on economic growth including local and regional development, and 3) entrepreneurial attitudes and motives. We invite original papers of theoretical and empirical nature, rooted in the disciplines of economics, management, sociology, political science, and psychology. The interdisciplinary research is encouraged to assure a comprehensive approach to the topics discussed and to advance both theory and practice. THE MANAGEMENT AREA OF THE JOURNALManagement, as a thematic scope of the journal, focuses on theoretical and empirical considerations of various areas, such as: strategic management, operation or production management, human resource management, information and management, contemporary management problems, new methods and management tools, new forms of organization and management, new threats in management, or new challenges in the organization's environment. THE INNOVATION AREA OF THE JOURNALThe innovation area of the Journal's focus will emphasize a broad range of topics and approaches, including (but not limited to): 1) role of private and public sector in development and diffusion of innovations, 2) product, process and business model innovations, 3) profiles of innovative products, structures and processes, aimed at improving management practice and providing inspiration for entrepreneurs, 4) comparative analyses of national, regional policy or sector issues, such as R&D trends, patents, citations etc., 5) theoretical work on economic, organizational and scientific aspects of innovation, encouraging the search for inspirations from various disciplines, including natural sciences, arts and humanities. THE ENTREPRENEURIAL FINANCE AREA OF THE JOURNALThe entrepreneur or entrepreneurial firm, the institutions providing finance to the entrepreneurs, and the different types of financial sources used by the entrepreneurial firms or investors. Among the areas of our special interests might be enumerated: accounting and corporate finance, financial market as a background for SME development, entrepreneurial finance, regulatory and supervisory aspects related to corporate finance.

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“…Hasil ini tidak sesuai dengan asumsi awal dengan dikaitkan teori sinyal yaitu adanya hubungan positif dan signifikan antara dividend yield dengan persistensi laba perusahaan. Hasil penelitian ini gagal dalam memperkuat pendapat pendapat peneliti terdahulu tersebut (Nugroho, 2019) (Mulchandani et al, 2020), (Lin & Lee, 2021).…”

Section: 𝑪𝒂𝒔𝒉 𝑹𝒂𝒕𝒊𝒐 (𝑪𝑹) = 𝑲𝒂𝒔 + 𝑺𝒆𝒕𝒂𝒓𝒂 𝑲𝒂𝒔 𝑯𝒖𝒕𝒂𝒏𝒈 𝒍𝒂𝒏𝒄𝒂𝒓 Dividend Yi...unclassified

Pengaruh Accounting Comparability, Environmental Responsibility, Cash Ratio Dan Dividend Yield Terhadap Earnings Persistence

Avianto

Hasnawati²

2022

SOSTECH

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Penelitian ini bertujuan untuk membuktikan adanya pengaruh komparabilitas akuntansi, tanggung jawab lingkungan, rasio kas, dan dividend yield terhadap kegigihan penghasilan. Populasi dalam penelitian ini adalah perusahaan yang beroperasi di industri terkenal. Penelitian ini menggunakan data sekunder yang diambil dari laporan keuangan di situs resmi masing-masing perusahaan atau dari Website BEI. Sampel dalam penelitian ini diambil dengan teknik purposive sampling yang menghasilkan dua belas perusahaan untuk periode 2016-2020. Studi ini menunjukkan bahwa tanggung jawab lingkungan dan rasio kas memiliki efek positif pada persistensi pendapatan. Studi ini menyiratkan bahwa manajemen perusahaan harus mempertahankan kegigihan pendapatan dengan mempertahankan rasio kas mereka sambil menerapkan tanggung jawab lingkungan secara ketat dalam proses bisnis mereka

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Does managerial reluctance of dividend cuts signal future earnings?

Cited by 14 publications

References 36 publications

ESG performance and dividend stability of the world’s largest enterprises

ESG performance and dividend stability of the world’s largest enterprises

Untitled

Pengaruh Accounting Comparability, Environmental Responsibility, Cash Ratio Dan Dividend Yield Terhadap Earnings Persistence

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