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What Drives the Cash Dividend Policy of the Poorly Performing Firms in Hong Kong?

Author

Listed:
  • Louis T. W. Cheng

    (School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong)

  • Hung-Gay Fung

    (College of Business Administration, University of Missouri St. Louis, One University Blvd, St. Louis, MO 63112, USA)

  • T. Y. Leung

    (Department of Accountancy, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong)

Abstract

We use financial data on poorly performing firms in Hong Kong to examine the motives behind paying out cash dividends when they suffer an earnings decline. We test three hypotheses behind the cash dividend policy: the maturity hypothesis, the free cash flow hypothesis, and the self-interest hypothesis of directors (i.e., the cash channeling hypothesis of directors). The findings are largely consistent with the maturity hypothesis and the free cash flow hypothesis but do not support the cash channeling hypothesis, confirming good market transparency and governance of the Hong Kong market.

Suggested Citation

  • Louis T. W. Cheng & Hung-Gay Fung & T. Y. Leung, 2008. "What Drives the Cash Dividend Policy of the Poorly Performing Firms in Hong Kong?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(03), pages 347-361.
    • Handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:03:n:s0219091508001386
    DOI: 10.1142/S0219091508001386
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    Citations

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    Cited by:

    1. Jianan Guo, 2016. "Ultimate Controlling Shareholders and Dividend Payout Policy in Chinese Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-35, June.
    2. Ammari, Aymen & Bouteska, Ahmed & Regaieg, Boutheina, 2016. "CEO Entrenchment and Performance: New Evidence Using Nonlinear Principal Component Analysis," MPRA Paper 75529, University Library of Munich, Germany.
    3. James Juichia Lin & Cheng-Few Lee, 2021. "Does managerial reluctance of dividend cuts signal future earnings?," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 453-478, February.
    4. Ivan E. Brick & Rose C. Liao, 2017. "The joint determinants of cash holdings and debt maturity: the case for financial constraints," Review of Quantitative Finance and Accounting, Springer, vol. 48(3), pages 597-641, April.
    5. Naheed Rabbani, 2017. "The Announcement Effect of Cash Dividend Changes on Share Prices: Evidence from Dhaka Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-19, December.

    More about this item

    Keywords

    Corporate governance; maturity; poor earnings; cash dividends; D82; G14; M41;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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