Dividends and Foreign Performance Signaling

Robert Joliet () and Aline Muller ()
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Aline Muller: HEC Management School of the University of Liège, Belgium

Multinational Finance Journal, 2015, vol. 19, issue 2, 77-107

Abstract: This study uses Hines' (1996) dividend process model to test the effect of domestic versus foreign profitability shocks on firms' dividend payout policy. Investigating an international sample of 283 companies from Continental Europe, Australia, New Zealand, the U.S.A. and Canada, we find that increases in some foreign market earnings stimulate higher cash distributions than similar increases in domestic earnings. The disaggregation of foreign performance across country-specific markets reveals that managers are predominantly using dividends to signal foreign profit movements that have been generated in emerging markets and Asian Pacific developed markets - while they do not feel compelled to send signals related to positive earnings news originating from other mature developed markets (i.e. North America and Western Europe). The findings also confirm the popular view that due to their higher variance and lower persistence, positive foreign profitability shocks coming from emerging markets are more difficult to integrate into stable dividend policies.

Keywords: disclosure; dividend policy; multinational firm; disaggregation; emerging markets (search for similar items in EconPapers)
JEL-codes: F23 G14 M41 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:19:y:2015:i:2:p:77-107

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