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The Dividend and Share Repurchase Policies of Canadian Firms

Author

Listed:
  • de Jong, A.
  • van Dijk, R.
  • Veld, C.H.

Abstract

We empirically investigate dividend and share repurchase policies of Canadian firms. We have sent a questionnaire to the 500 largest non-financial Canadian companies listed on the Toronto Stock Exchange, of which 191 usable responses were returned. These data are used to measure firm characteristics. We use several logit regression analyses to test the structure and determinants of the dividend and share repurchase choice. Our results are consistent with a structure in which the company first decides whether it wants to pay out cash to its shareholders or not. In the second stage the firm decides on the form of the payout: dividends, share repurchases or both. Payout is determined by free cash flow. The choice for dividends and repurchases depends on behavioral and tax preferences. Furthermore, the payout is less likely to be dividends if the company has executive stock option plans. Finally, we find evidence for the Brennan and Thakor (1990) model. According to this model the existence of asymmetric information amongst outsiders is associated with a preference for dividend payments over share repurchases.

Suggested Citation

  • de Jong, A. & van Dijk, R. & Veld, C.H., 2001. "The Dividend and Share Repurchase Policies of Canadian Firms," ERIM Report Series Research in Management ERS-2001-88-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:149
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    References listed on IDEAS

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    More about this item

    Keywords

    dividends; nested logit models; payout decisions; share repurchases; strategic financial decisions;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics

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