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Returns for Dividend-Paying and Non Dividend Paying Firms

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Listed:
  • Yufen Fu
  • George W. Blazenko

Abstract

In this paper, we compare the equity returns of dividend-paying and non-dividend paying firms. We find no unconditional return difference even though non-dividend paying firms have many characteristics that suggest high risk. Equivalently, because non-dividend paying firms have high risk-metrics, their returns are abnormally low compared with dividend-paying firms. The reason for these anomalies is that a larger fraction of non-dividend paying firms are in financial distress and, despite high distress-risk and high growth-leverage, firms in financial distress have low returns from high volatility that decreases the optionsleverage of equity. Removing firms in financial distress, returns for non-dividend paying firms increase relative to dividend-paying firms and abnormal returns disappear. We argue that part of the reason that firms in financial-distress have high volatility that leads to low returns is managerial risk-shifting that takes form as unexpectedly high capital expenditure rates.

Suggested Citation

  • Yufen Fu & George W. Blazenko, 2015. "Returns for Dividend-Paying and Non Dividend Paying Firms," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(2), pages 1-20.
    • Handle: RePEc:ibf:ijbfre:v:9:y:2015:i:2:p:1-20
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    References listed on IDEAS

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    Cited by:

    1. Fu, Yufen & Blazenko, George W., 2017. "Normative portfolio theory," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 240-251.
    2. Fu, Yufen & Wright, Danika & Blazenko, George, 2020. "Ethical Investing Has No Portfolio Performance Cost," Research in International Business and Finance, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Equity Returns; Dividends; Financial Distress; Volatility; Growth;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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