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The changing role of dividends: a firm-level study from the nineteenth to the twenty-first century

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  • Stephen R. Foerster
  • Stephen G. Sapp

Abstract

We investigate the changes in dividend policy for one of North America's oldest banks (and Canada's first bank), Bank of Montreal, over time by considering the relationships between dividends, prices and earnings for this prominent firm. In the early part of the sample we find that annual dividend and earnings changes are highly variable, with dividend changes following changes in earnings and a larger portion of investors' returns coming from dividends. Since World War II dividend policy has been characterized by more stable and gradual increases in dividends, with more of investors' returns coming from capital gains. Overall, our results suggest that investors' perception of dividends has changed over time, allowing management to pay smaller dividends and reinvest funds in the firm.

Suggested Citation

  • Stephen R. Foerster & Stephen G. Sapp, 2006. "The changing role of dividends: a firm-level study from the nineteenth to the twenty-first century," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1316-1344, November.
  • Handle: RePEc:cje:issued:v:39:y:2006:i:4:p:1316-1344
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    Cited by:

    1. repec:eee:jbfina:v:85:y:2017:i:c:p:113-131 is not listed on IDEAS
    2. Foerster, Stephen R. & Sapp, Stephen G., 2011. "Back to fundamentals: The role of expected cash flows in equity valuation," The North American Journal of Economics and Finance, Elsevier, vol. 22(3), pages 320-343.
    3. Baker, H. Kent & Dutta, Shantanu & Saadi, Samir, 2008. "Impact of financial and multinational operations on manager perceptions of dividends," Global Finance Journal, Elsevier, vol. 19(2), pages 171-186.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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