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Dividend policy and corporate valuation

Richard Hauser and John Thornton

Managerial Finance, 2017, vol. 43, issue 6, 663-678

Abstract: Purpose - The purpose of this paper is to investigate an empirical solution to dividend policy relevance. Design/methodology/approach - The paper combines measures of firm maturity in a logit regression to define a comprehensive life-cycle model of the likelihood of dividend payment. The valuation of firms that conform to the model is compared to the valuation of firms that do not fit the model. Valuation is measured by the market to book ( Findings - The analysis indicates that dividend policy is related to firm value. Dividend-paying firms that fit the life-cycle model have a higher median valuation than dividend-paying firms that do not fit the life-cycle model. Similarly, non-paying firms that fit the life-cycle model have a higher median valuation than non-paying firms that do not fit the life-cycle model. The results also provide evidence that the disappearing dividend phenomenon is related to shifts in valuation. Research limitations/implications - This paper focuses on the payment of dividends. Stock repurchases are not considered. Practical implications - The results indicate that dividend policy is related to firm value. Approximately 15 percent of sample observations have a dividend policy counter to the life-cycle model. Originality/value - This paper shows that the relation between a firm’s

Keywords: Dividends; Valuations (search for similar items in EconPapers)
Date: 2017
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