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Dividend Policies in an Unregulated Market: The London Stock Exchange 1895-1905

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  • Braggion, F.
  • Moore, L.

    (Tilburg University, Center for Economic Research)

Abstract

We examine the e¤ects of dividend policies on 469 British firms between 1895 and 1905. These firms operated in an environment of very low taxation and an absence of institutional constraints. We find strong support for asymmetric information/signaling theories of dividend policy, and little support for agency models. Our results suggest that dividends can signal information from managers to shareholders, even if dividend payments incur only very low taxes. However, taxes appear to be necessary to allow dividend policies to resolve agency problems between managers and investors.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-83.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200883

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Keywords: Dividend Policy; London Stock Exchange;

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  1. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  2. Shlomo Benartzi & Roni Michaely & Richard Thaler, . "Do Changes in Dividends Signal the Future or the Past?," CRSP working papers 327, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Eugene F. Fama & Kenneth R. French, . "Forecasting Profitability and Earnings," CRSP working papers 358, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  4. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
  5. Franklin Allen & Roni Michaely, 2002. "Payout Policy," Center for Financial Institutions Working Papers 01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Allen, Franklin & Michaely, Roni, 2003. "Payout policy," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429 Elsevier.
  6. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
  7. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  8. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
  9. Del Guercio, Diane, 1996. "The distorting effect of the prudent-man laws on institutional equity investments," Journal of Financial Economics, Elsevier, vol. 40(1), pages 31-62, January.
  10. Chetty, Raj & Saez, Emmanuel, 2004. "Dividend Taxes and Corporate Behaviour: Evidence from the 2003 Dividend Tax Cut," CEPR Discussion Papers 4722, C.E.P.R. Discussion Papers.
  11. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
  12. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  13. Franklin Allen & Antonio E. Bernardo & Ivo Welch, 2000. "A Theory of Dividends Based on Tax Clienteles," Journal of Finance, American Finance Association, vol. 55(6), pages 2499-2536, December.
  14. A.J. Arnold, 1998. "UK Accounting Disclosure Practices and Information Asymmetry During the First Quarter of the Twentieth Century: The Effects on Book Returns and Dividend Cover," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(7&8), pages 775-794.
  15. B. Douglas Berhheim, 1991. "Tax Policy and the Dividend Puzzle," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 455-476, Winter.
  16. Amihud, Yakov & Murgia, Maurizio, 1997. " Dividends, Taxes, and Signaling: Evidence from Germany," Journal of Finance, American Finance Association, vol. 52(1), pages 397-408, March.
  17. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
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  19. Gustavo Grullon & Roni Michaely & Shlomo Benartzi & Richard H. Thaler, 2005. "Dividend Changes Do Not Signal Changes in Future Profitability," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1659-1682, September.
  20. Hutson, Elaine, 2005. "The early managed fund industry: Investment trusts in 19th century Britain," International Review of Financial Analysis, Elsevier, vol. 14(4), pages 439-454.
  21. Leslie Hannah, 2007. "Pioneering Modern Corporate Governance: a View from London in 1900," CIRJE F-Series CIRJE-F-487, CIRJE, Faculty of Economics, University of Tokyo.
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Cited by:
  1. Ye, Qing & Turner, John D., 2014. "The cross-section of stock returns in an early stock market," QUCEH Working Paper Series 14-05, Queen's University Centre for Economic History, Queen's University Belfast.
  2. Burhop, Carsten & Chambers, David & Cheffins, Brian, 2014. "Regulating IPOs: Evidence from going public in London, 1900–1913," Explorations in Economic History, Elsevier, vol. 51(C), pages 60-76.
  3. Davies, Richard & Haldane, Andrew G. & Nielsen, Mette & Pezzini, Silvia, 2014. "Measuring the costs of short-termism," Journal of Financial Stability, Elsevier, vol. 12(C), pages 16-25.
  4. Acheson, Graeme G. & Campbell, Gareth & Turner, John D. & Vanteeva, Nadia, 2014. "Corporate ownership and control in Victorian Britain," eabh Papers 14-02, The European Association for Banking and Financial History (EABH).
  5. Braggion, F. & Moore, L., 2011. "The Economic Benefits of Political Connections in Late Victorian Britain," Discussion Paper 2011-039, Tilburg University, Center for Economic Research.
  6. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Centre for Economic History, Queen's University Belfast.
  7. Matthias Nnadi & Nyema Wogboroma & Bariyima Kabel, 2013. "Determinants of Dividend Policy: Evidence from Listed Firms in the African Stock Exchanges," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(6), pages 725-741, December.

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