The Shift of a Dividend Policy and a Leverage Policy during the 2008 Financial Crisis
DOI:
https://doi.org/10.20525/ijfbs.v5i6.600Keywords:
Dividend, Leverage, Financial Crisis, Cultural NormAbstract
This paper investigates how firms shifted their dividend policies and leverage policies in response to the economic shock caused by the 2008 financial crisis. The sample countries are United States, Great Britain, France, Germany, Australia, Japan, China, and Korea. The empirical relationship of firms’ dividend policies with their capital structures and earnings was likely to undergo a major change around the 2008 financial crisis, as firms adjusted their capital structures and dividend policies in response to the extreme credit crunch caused by the financial crisis. The extent and the speed that firms deleverage themselves and reduce their dividends were likely to be influenced by countries’ cultural and social norms. This paper finds a significant reduction in dividends across sample countries except Great Britain and France after the 2008 crisis. This finding supports the free cash flow theory that dividends are paid to dissipate free cash flow to address agency conflicts between managers and shareholders. This paper finds a higher correlation between dividends and leverages before the 2008 crisis, and that it strengthened after the crisis except Great Britain and Korea. This finding is consistent more with the pecking order theory than with the trade-off theory of leverage.
Downloads
References
Baker, M., Wurgler, J., A Catering Theory of Dividends. The Journal of Finance 59, 1125- 1165
Breuer, W., Rieger, M.O., Soypak, K.C., 2014. The Behavioral Foundations of Corporate Dividend Policy; A Cross-Country Analysis. Working paper
DeAngelo, H., DeAngelo, L., Skinner, D. J., 2009 Corporate Payout Policy. Foundations and Trends in Finance 3, 95-287
Fidrmuc, J.P., Jacob, M., 2010. Culture, agency costs, and dividends. Journal of Comparative Economics 38, 321-339
Hofstede, G., 1980. Culture’s consequences: International differences in work-related values. Sage Publicaion, Beverly Hills, CA
Lang, L. H. P., Litzenberger, R. H., Dividend announcements: cash flow signaling vs. free cash flow hypothesis? Journal of Financial Economics 24, 181-191
Myers, S. C., Majluf, N. S., 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13, 187-221
Shao, L., Kwok, C.C., Guedhami, O., 2010. National culture and dividend policy. Journal of International Studies 41, 1391-1414
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2016 International Journal of Finance & Banking Studies (2147-4486)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Authors contributing to IJFBS agree to publish their articles under the Creative Commons Attribution- 4.0 license, allowing third parties to share their work (copy, distribute, transmit) and to adapt it, under the condition that the authors are given credit, that the work is not used for commercial purposes, and that in the event of reuse or distribution, the terms of this license are made clear. Authors retain copyright of their work, with first publication rights granted to IJFBS. However, authors are required to transfer copyrights associated with commercial use to the Publisher. The authors agree to the terms of this Copyright Notice, which will apply to this submission if and when it is published by this journal
Submission of an article implies that the work described has not been published previously( except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, it will not be published elsewhere in the same form, in English or in any other languages, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.