Relationship between Cash Dividends and Share Repurchases
Date Issued
2009
Date
2009
Author(s)
Hsiao, Shu-Fen
Abstract
This paper investigates the relationship between the two methods to payout cash earnings to shareholders, cash dividends and stock repurchases, using multi-regression analysis. Is there any substitution effect that cash dividends payout ratio get influenced after stock repurchasing? Or do differences between cash dividends payout ratios affect the level that corporate might buy back the stocks? This paper tries to find the relationship in two ways, using two kinds of samples, all listing companies and companies that announce to buy back their stocks, then analyses both cross sectional and time series effect. The results show that there is no substitution effect between stock repurchases and cash dividends, and the differences between the cash dividends payout ratio do not affect share repurchases. When companies plan to payout cash dividends, the extent that companies repurchased stocks might be one of the factors to consider. Or companies intend to have higher cash dividend ratios will intend to do larger repurchases. When companies set up the repurchase policy, the changes of the cash dividend payout ratio might not be contemplated. Among the companies that announce to do share repurchases, if free cashflow is higher, the cash dividend payout ratio is higher; and if non-operating income is higher, the share buyback ratio is higher.
Subjects
cash dividends
share repurchases
earnings payout
Type
thesis
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