The dividend initiation decision : theory and evidence
Name
928912450-MIT.pdf
Description
Full printable version
Size
5.97 MB
Format
Adobe PDF
Checksum (MD5)
359ca47c53f81dada103ec5d44d80146
Author(s)
Thakor, Richard Todd
Advisor(s)
Nittai Bergman.
Date Issued
2015
Publisher
Massachusetts Institute of Technology
Abstract
This paper develops and tests a dynamic, sequential equilibrium model of corporate cash payout policy that endogenizes a firm's dividend initiation decision, and its extreme reluctance to subsequently cut dividends in a sequential equilibrium. After payment of dividends, all excess cash is disgorged via stock repurchases that elicit no price reactions. The theoretical model generates results consistent with many stylized facts related to dividend initiations, including: a positive announcement effect associated with a dividend initiation; a larger (in absolute value) negative announcement effect for a dividend cut/omission than for an initiation; and a probability of dividend initiation that is increasing in the firm's profitability and assets in place, and decreasing in the personal tax rate on dividends relative to capital gains. The model also generates additional novel predictions, one of which is that the probability of dividend initiation is decreasing in managerial ownership of the firm, and this effect is stronger the weaker is (external) corporate governance. A second novel prediction is that the dividend initiation probability is decreasing in the potential loss in value from the "two-audience-signaling" information disclosure costs associated with secondary equity issues. These new predictions are tested empirically using a predictive logit model of dividend initiations. Moreover, the paper tests and finds additional empirical support for the information-disclosure result using a regression discontinuity design.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2015.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 72-76).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
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