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Hard Times or Great Expectations?: Dividend omissions and dividend cuts by UK firms

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  • Andrew Benito
  • Garry Young

Abstract

The payment of dividends is one of the key unresolved puzzles of company financial behaviour. This paper uncovers a more recent dividend puzzle; that of an increasing proportion of quoted UK companies omitting cash dividends. Also motivated by a desire to understand corporate balance sheet adjustment, models for the incidence of dividend omissions and cuts are estimated as functions of financial characteristics including cash flow, leverage, investment opportunities, investment and company size. These financial variables can account for most of the increase in omissions since 1995. There is relatively little evidence to link this to the major tax reform of 1997 that abolished tax refunds on dividend income payable to tax-exempt institutions. Significant persistence effects indicate that companies are slow to adjust their balance sheets through dividends.

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Paper provided by Bank of England in its series Bank of England working papers with number 147.

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Date of creation: Dec 2001
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Handle: RePEc:boe:boeewp:147

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Cited by:
  1. Philip Bunn & Kamakshya Trivedi, 2005. "Corporate expenditures and pension contributions: evidence from UK company accounts," Bank of England working papers, Bank of England 276, Bank of England.
  2. Andrew Benito & Ignacio Hernando, 2002. "Extricate: Financial Pressure and Firm Behaviour in Spain," Banco de Espa�a Working Papers 0227, Banco de Espa�a.
  3. Bank, Steven & Cheffins, Brian & Goergen, Marc, 2009. "Dividends and politics," European Journal of Political Economy, Elsevier, vol. 25(2), pages 208-224, June.
  4. Kamat, Manoj S., 2009. "The Ownership and Industry Effects of Corporate Dividend Policy in India, 1961-2007," MPRA Paper 12545, University Library of Munich, Germany.
  5. Björn A. Hauksson, 2005. "Aggregate business fixed investment," Economics, Department of Economics, Central bank of Iceland wp27_bjorn, Department of Economics, Central bank of Iceland.
  6. Andrew Benito & Garry Young, 2002. "Financial pressure and balance sheet adjustment by UK firms," Bank of England working papers, Bank of England 168, Bank of England.
  7. Mohammad Mirbagherijam, 2014. "Asymmetric Effect of Inflation on Dividend Policy of Iran's Stocks Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Scien, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(2), pages 337-350, February.
  8. Andrew Benito, 2003. "The incidence and persistence of dividend omissions by Spanish firms," Banco de Espa�a Working Papers 0303, Banco de Espa�a.
  9. Ferris, Stephen P. & Sen, Nilanjan & Yui, Ho Pei, 2006. "Are fewer firms paying more dividends?: The international evidence," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 16(4), pages 333-362, October.
  10. Baba, Naohiko, 2009. "Increased presence of foreign investors and dividend policy of Japanese firms," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 17(2), pages 163-174, April.
  11. Carlos Martins, 2007. "Consistency of Dividend Signalling and Future Maturity Level:Evidence from UK Data," Working Papers de Economia (Economics Working Papers), Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro 40, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  12. Andrew Benito, 2003. "The capital structure decisions of firms: is there a pecking order?," Banco de Espa�a Working Papers 0310, Banco de Espa�a.
  13. Leibrecht, Markus & Bellak, Christian & Wild, Michael, 2009. "Does lowering dividend tax rates increase dividends repatriated?: evidence of intra-firm cross-border dividend repatriation policies by German Multinational Enterprises," Discussion Paper Series 1: Economic Studies 2009,19, Deutsche Bundesbank, Research Centre.
  14. Kellard, Neil M. & Nankervis, John C. & Papadimitriou, Fotios I., 2010. "Predicting the equity premium with dividend ratios: Reconciling the evidence," Journal of Empirical Finance, Elsevier, Elsevier, vol. 17(4), pages 539-551, September.
  15. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, Elsevier, vol. 89(1), pages 62-82, July.
  16. Philip Bunn & Garry Young, 2004. "Corporate capital structure in the United Kingdom: determinants and adjustment," Bank of England working papers, Bank of England 226, Bank of England.
  17. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
  18. Kearns, Allan, 2003. "Corporate Indebtedness and Liquidations in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 91-105, August.

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