IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v45y2024i2p664-684.html
   My bibliography  Save this article

Corporate value, price and dividend policy: A case study of U.S. listed firms

Author

Listed:
  • Martin Boďa
  • Radoslav Jeřábek

Abstract

Focussed upon the U.S. stock market, the paper investigates the role of dividend policy, its level and (in)stability in generation of relative corporate value and relative stock price. Whilst relative corporate value is proxied by Tobin's q and relative stock price is operationalised by the four most frequent multiples (P/E, P/B, P/S and P/FCF), the dividend policy is represented by three popular metrics measuring the propensity to pay dividends. Controlling for operating and macroeconomic conditions, panel data techniques in a simultaneous equations framework are employed to 115,837 quarterly observations for 1466 firms represented in the S&P 1500 Composite Index over the period 1989–2022. The findings reveal that dividend policy matters, albeit the response of Tobin's and multiples to dividend policy is asymmetric. In particular, corporate value of U.S. firms is found to increase with per‐share dividend amounts but decreases relative to the dividend payout ratio and yield. The established empirical evidence reaffirms claims against dividend neutrality and is useful in developing pre‐selection investing strategies that relate practices in dividend policy to fundamental screening based on multiples.

Suggested Citation

  • Martin Boďa & Radoslav Jeřábek, 2024. "Corporate value, price and dividend policy: A case study of U.S. listed firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(2), pages 664-684, March.
  • Handle: RePEc:wly:mgtdec:v:45:y:2024:i:2:p:664-684
    DOI: 10.1002/mde.4024
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.4024
    Download Restriction: no

    File URL: https://libkey.io/10.1002/mde.4024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    3. Basil Al-Najjar & Erhan Kilincarslan, 2019. "What do we know about the dividend puzzle? – A literature survey," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 15(2), pages 205-235, March.
    4. Basil Al-Najjar & Erhan Kilincarslan, 2019. "What do we know about the dividend puzzle? – A literature survey," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 15(2), pages 205-235, March.
    5. Baker, H. Kent & Powell, Gary E. & Veit, E. Theodore, 2002. "Revisiting the dividend puzzle: Do all of the pieces now fit?," Review of Financial Economics, Elsevier, vol. 11(4), pages 241-261.
    6. Zhu, Yanli & Sun, Yingnan & Xiang, Xinyu, 2020. "Economic policy uncertainty and enterprise value: Evidence from Chinese listed enterprises," Economic Systems, Elsevier, vol. 44(4).
    7. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
    8. Kee H. Chung & Stephen W. Pruitt, 1994. "A Simple Approximation of Tobin's q," Financial Management, Financial Management Association, vol. 23(3), Fall.
    9. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    10. repec:eme:mfppss:v:33:y:2007:i:1:p:4-13 is not listed on IDEAS
    11. Sung C. Bae & Kiyoung Chang & Eun Kang, 2012. "Culture, Corporate Governance, And Dividend Policy: International Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 35(2), pages 289-316, June.
    12. Baker, Malcolm & Wurgler, Jeffrey, 2004. "Appearing and disappearing dividends: The link to catering incentives," Journal of Financial Economics, Elsevier, vol. 73(2), pages 271-288, August.
    13. H.Kent Baker & Gary E. Powell & E.Theodore Veit, 2002. "Revisiting the dividend puzzle," Review of Financial Economics, John Wiley & Sons, vol. 11(4), pages 241-261.
    14. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    15. Badi H. Baltagi, 2021. "Simultaneous Equations with Error Components," Springer Texts in Business and Economics, in: Econometric Analysis of Panel Data, edition 6, chapter 0, pages 157-186, Springer.
    16. 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.
    17. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    18. Adaoglu, Cahit, 2000. "Instability in the dividend policy of the Istanbul Stock Exchange (ISE) corporations: evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 1(3), pages 252-270, November.
    19. Swamy, P A V B & Arora, S S, 1972. "The Exact Finite Sample Properties of the Estimators of Coefficients in the Error Components Regression Models," Econometrica, Econometric Society, vol. 40(2), pages 261-275, March.
    20. Neil Thomas Bendle & Moeen Naseer Butt, 2018. "The Misuse of Accounting-Based Approximations of Tobin’s q in a World of Market-Based Assets," Marketing Science, INFORMS, vol. 37(3), pages 484-504, May.
    21. repec:eme:mfppss:v:37:y:2011:i:1:p:34-46 is not listed on IDEAS
    22. Khadija Farrukh & Sadia Irshad & Maria Shams Khakwani & Sadia Ishaque & Nabeel Younus Ansari, 2017. "Impact of dividend policy on shareholders wealth and firm performance in Pakistan," Cogent Business & Management, Taylor & Francis Journals, vol. 4(1), pages 1408208-140, January.
    23. H. Kent Baker & David M. Smith, 2006. "In search of a residual dividend policy," Review of Financial Economics, John Wiley & Sons, vol. 15(1), pages 1-18.
    24. repec:eme:mfppss:mf-05-2015-0157 is not listed on IDEAS
    25. repec:eme:mfppss:mf-09-2018-0443 is not listed on IDEAS
    26. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    27. Harry DeAngelo & Linda DeAngelo, 2007. "Payout Policy Pedagogy: What Matters and Why," European Financial Management, European Financial Management Association, vol. 13(1), pages 11-27, January.
    28. Croissant, Yves & Millo, Giovanni, 2008. "Panel Data Econometrics in R: The plm Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 27(i02).
    29. repec:eme:mfppss:mf-06-2017-0215 is not listed on IDEAS
    30. repec:eme:mfppss:eb018440 is not listed on IDEAS
    31. Croissant, Yves & Millo, Giovanni, 2008. "Panel Data Econometrics in R: The plm Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 27(i02).
    32. Perfect, Steven B. & Wiles, Kenneth W., 1994. "Alternative constructions of Tobin's q: An empirical comparison," Journal of Empirical Finance, Elsevier, vol. 1(3-4), pages 313-341, July.
    33. repec:eme:mfppss:v:41:y:2015:i:2:p:126-144 is not listed on IDEAS
    34. Hung Ngoc Dang & Van Thi Thuy Vu & Xuan Thanh Ngo & Ha Thi Viet Hoang, 2021. "Impact of dividend policy on corporate value: Experiment in Vietnam," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5815-5825, October.
    35. Emanuele Rossi & Gianfranco Forte, 2016. "Assessing Relative Valuation in Equity Markets," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-56335-4, December.
    36. Geetanjali Pinto & Shailesh Rastogi & Sanjeev Kadam & Arpita Sharma, 2019. "Bibliometric study on dividend policy," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 12(1), pages 72-95, November.
    37. Varouj Aivazian & Laurence Booth & Sean Cleary, 2003. "Do Emerging Market Firms Follow Different Dividend Policies From U.S. Firms?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(3), pages 371-387, September.
    38. repec:eme:mfppss:v:42:y:2016:i:3:p:270-288 is not listed on IDEAS
    39. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    40. Erdem Ucar, 2016. "Local Culture and Dividends," Financial Management, Financial Management Association International, vol. 45(1), pages 105-140, March.
    41. DeAngelo, Harry & DeAngelo, Linda, 2006. "The irrelevance of the MM dividend irrelevance theorem," Journal of Financial Economics, Elsevier, vol. 79(2), pages 293-315, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maria Elisabete Duante Neves, 2017. "Payout and Firm's Catering," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 104-132.
    2. repec:ers:journl:v:v:y:2017:i:4:p:104-132 is not listed on IDEAS
    3. Tobias Basse & Christoph Schwarzbach & J.-Matthias Schulenburg, 2023. "Dividend policy issues in the European pharmaceutical industry: new empirical evidence," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(5), pages 803-816, July.
    4. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    5. Booth, Laurence & Zhou, Jun, 2017. "Dividend policy: A selective review of results from around the world," Global Finance Journal, Elsevier, vol. 34(C), pages 1-15.
    6. He, Wen & Zhang, Feida, 2022. "Languages and dividends," The British Accounting Review, Elsevier, vol. 54(6).
    7. Thomas McCluskey & Aoife Broderick & Amanda Boyle & Bruce Burton & David Power, 2010. "Evidence on Irish financial analysts' and fund managers' views about dividends," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 2(2), pages 80-99, June.
    8. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
    9. Jasminder Kaur, 2019. "Firm’s Life Cycle Spurs the Dividend Payments: A Fallacy or an Actuality?," Paradigm, , vol. 23(1), pages 36-52, June.
    10. Albuquerque, Pedro H. & Rajhi, Wassim, 2019. "Banking stability, natural disasters, and state fragility: Panel VAR evidence from developing countries," Research in International Business and Finance, Elsevier, vol. 50(C), pages 430-443.
    11. Mao Liang Li & Chin Man Chui & Chang Qing Li, 2014. "Dividend, liquidity and firm valuation: evidence from China AB share markets," Applied Financial Economics, Taylor & Francis Journals, vol. 24(9), pages 587-603, May.
    12. Liu, Chinpiao & Chen, An-Sing, 2015. "Do firms use dividend changes to signal future profitability? A simultaneous equation analysis," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 194-207.
    13. Erkan, Asligul & Fainshmidt, Stav & Judge, William Q., 2016. "Variance decomposition of the country, industry, firm, and firm-year effects on dividend policy," International Business Review, Elsevier, vol. 25(6), pages 1309-1320.
    14. Karpavičius, Sigitas & Yu, Fan, 2018. "Dividend premium: Are dividend-paying stocks worth more?," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 112-126.
    15. Krieger, Kevin & Lee, Bong-Soo & Mauck, Nathan, 2013. "Do senior citizens prefer dividends? Local clienteles vs. firm characteristics," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 150-165.
    16. ElBannan, Mona A., 2020. "Does catering behavior persist? Evidence on dividend sentiment in emerging financial markets," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 350-373.
    17. Emirmahmutoglu, Furkan & Kose, Nezir, 2011. "Testing for Granger causality in heterogeneous mixed panels," Economic Modelling, Elsevier, vol. 28(3), pages 870-876, May.
    18. Enrico Onali, 2014. "Moral Hazard, Dividends, and Risk in Banks," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 128-155, January.
    19. Yu, Chih-Ping, 2015. "Financial policies on firm performance: The U.S. insurance industry before and after the global financial crisis," Economic Modelling, Elsevier, vol. 51(C), pages 391-402.
    20. Geetanjali Pinto & Shailesh Rastogi, 2019. "Sectoral Analysis of Factors Influencing Dividend Policy: Case of an Emerging Financial Market," JRFM, MDPI, vol. 12(3), pages 1-18, June.
    21. Hai Vo, Long & Hong Vo, Duc, 2020. "Long-run dynamics of exchange rates: A multi-frequency investigation," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:45:y:2024:i:2:p:664-684. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.