IDEAS home Printed from https://ideas.repec.org/p/uno/wpaper/2004-07.html
   My bibliography  Save this paper

Distributing excess cash: the role of specially designated dividends

Author

Listed:
  • Baker, H. Kent

    (American University)

  • Mukherjee, Tarun K.

    (University of New Orleans)

  • Powell, Gary E.

    (Towson University)

Abstract

This study explores why firms distribute excess cash as specially designated dividends (SDDs) instead of using regular dividends or repurchasing shares. We survey top managers of NASDAQ, AMEX, and NYSE firms issuing at least one SDD between 1994 and 2001. The results show that firms tend to pay SDDs when they experience strong earnings and cash flows and want to increase at least temporarily the yield to shareholders. Having strong earnings and cash flows also provide an impetus for regular dividend increases, but paying regular dividends is part of a firm’s standard dividend policy. The primary motives for repurchasing shares are to take advantage of perceived market undervaluation of the firm’s shares and to improve performance measures, especially. Overall, the results lend support to the signaling explanation for the disbursement of excess funds, but not the free cash flow or wealth transfer explanations.

Suggested Citation

  • Baker, H. Kent & Mukherjee, Tarun K. & Powell, Gary E., 2004. "Distributing excess cash: the role of specially designated dividends," Working Papers 2004-07, University of New Orleans, Department of Economics and Finance.
  • Handle: RePEc:uno:wpaper:2004-07
    as

    Download full text from publisher

    File URL: http://louisdl.louislibraries.org/cgi-bin/showfile.exe?CISOROOT=/EFW&CISOPTR=27
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abdallah Atieh & Simon Hussain, 2012. "Accounting data and UK dividends," Journal of Applied Accounting Research, Emerald Group Publishing, vol. 13(1), pages 56-70, May.
    2. Robert A. Weigand & H. Kent Baker, 2009. "Changing perspectives on distribution policy: The evolution from dividends to share repurchase," Managerial Finance, Emerald Group Publishing, vol. 35(6), pages 479-492, May.

    More about this item

    Keywords

    Dividends; Payout policy; Specially designated dividends; Share repurchases;

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:uno:wpaper:2004-07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janet Murphy Crane). General contact details of provider: http://edirc.repec.org/data/deunous.html .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.