|Generate QR code
Open Access
Subscription Access
The “dividend puzzle” and the Russian stock market. Part 1
https://doi.org/10.32609/0042-8736-2020-1-66-92
Abstract
This article analyzes the key patterns of the dividend policy and the problem of the “dividend puzzle” in the general context of the development of the stock market in Russia. The article consists of two parts.
In the first part we summarize main research trends of dividend policy in modern economic theory (the classical Modigliani—Miller theory of dividend irrelevance, agent and signal hypotheses, the smoothing model, the catering theory, etc.). We emphasize the theoretical analysis of motivation of the largest Russian companies for profit allocation and dividend payout, based on a sample of 236 joint stock companies. Since 2012, a steady increase in dividend payments has been revealed in both private and state-owned enterprises (SOEs). The bulk of dividend payments from SOEs accounts for only 12 major companies. Along with an increase in the market value, dividends have become an important factor in the total return on shares. Under current conditions, the probability of paying dividends depends not only on the size of the company and indicators of its’ financial stability, but also on the presence of the state in the capital of companies. However, the relationship between the probability of paying dividends and state participation in the ownership structure is not universal and can be explained by specific factors that go beyond the classical dividend theories.
In the second part we will analyze the patterns of stock market performance and dividend policy of the largest Russian companies, motivation for dividend payouts and special aspects of SOEs policy.
About the Authors
A. E. Abramov
Russian Presidential Academy of National Economy and Public Administration
Russian Federation
Russian Federation
A. D. Radygin
Russian Presidential Academy of National Economy and Public Administration;
Gaidar Institute for Economic Policy
Russian Federation
Russian Federation
M. I. Chernova
Russian Presidential Academy of National Economy and Public Administration
Russian Federation
Russian Federation
R. M. Entov
Russian Presidential Academy of National Economy and Public Administration
Russian Federation
Russian Federation
References
1. Abramov A., Radygin A., Chernovа M., Entov R. (2017). State ownership and efficiency characteristics. Voprosy Ekonomiki, No. 4, pp. 5—37. (In Russian). https://doi.org/10.32609/0042-8736-2017-4-5-37
2. Valras L. (2000). Elements of pure political economy. Moscow: Izograf. (In Russian).
3. Radygin A. D. (ed.) (2009). Internal corporate governance mechanisms: Some applied issues. Moscow: Delo. (In Russian).
4. Stock J. H., Watson M. W. (2015). Introduction to econometrics. Moscow: Delo. (In Russian).
5. Tirole J. (2017). The theory of corporate finance, in 2 books, Book 1. Moscow: Delo. (In Russian).
6. Aivazian V., Booth L., Cleary S. (2003). Dividend policy and the organization of capital markets. Journal of Multinational Financial Management, Vol. 13, No. 2, pp. 101—121. https://doi.org/10.1016/S1042-444X(02)00038-5
7. Al-Gharaibeh M., Zurigat Z., Al-Harahsheh Z. (2013). The effect of ownership structure on dividends policy in Jordanian companies. Interdisciplinary Journal of Contemporary Research in Business, Vol. 4, No. 9, pp. 769—796.
8. Allen F., Bernardo A. E., Welch I. (2000). A theory of dividends based on tax clienteles. Journal of Finance, Vol. 55, No. 6, pp. 2499—2536. https://doi.org/10.1111/0022-1082.00298
9. Allen F., Michaely R. (2003). Payout policy. In: G. M. Constantinides, M. Harris, R. Stulz (eds.). Handbook of the economics of finance, Vol. 1. Amsterdam: NorthHolland, pp. 337—429.
10. Amihud Y., Murgia M. (1997). Dividends, taxes, and signaling: Evidence from Germany. Journal of Finance, Vol. 52, No. 1, pp. 397—408. https://doi.org/10.1111/j.1540-6261.1997.tb03822.x
11. Andres C., Doumet M., Fernau E., Theissen E. (2015). The Lintner model revisited: Dividends versus total payouts. Journal of Banking and Finance, Vol. 55, pp. 56—69. https://doi.org/10.1016/j.jbankfin.2015.01.005
12. Ang A., Bekaert G. (2003). How do regimes affect asset allocation? NBER Working Paper, No. w10080. https://doi.org/10.3386/w10080
13. Asquith P., Mullins D. (1983). The impact of initiating dividend payments on shareholders’ wealth. The Journal of Business, Vol. 56, No. 1, pp. 77—96. https://doi.org/10.1086/296187
14. Baker H. K., Farrelly G. E., Edelman R. B. (1985). A survey of management views on dividend policy. Financial Management, Vol. 14, No. 3, p. 78—84. https://doi.org/10.2307/3665062
15. Baker M., Wurgler J. (2004). A catering theory of dividends. Journal of Finance, Vol. 59, No. 3, pp. 1125—1165. https://doi.org/10.1111/j.1540-6261.2004.00658.x
16. Balachandran B., Krishnamurti C., Theobald M., Vidanapathirana B. (2012). Dividend reductions, the timing of dividend payments and information content. Journal of Corporate Finance, Vol. 18, No. 5, pp. 1232—1247. https://doi.org/10.1016/j.jcorpfin.2012.08.002
17. Barclay M. J., Holderness C. G., Sheehan D. P. (2009). Dividends and corporate shareholders. Review of Financial Studies, Vol. 22, No. 6, pp. 2423—2455. https://doi.org/10.1093/rfs/hhn060
18. Baskin J. B. (1988). The development of corporate financial markets in Britain and the United States, 1600—1914: Overcoming asymmetric information. Business History Review, Vol. 62, No. 2, pp. 199—237. https://doi.org/10.2307/3115999
19. Bernheim B. D. (1991). Tax policy and the dividend puzzle. Rand Journal of Economics, Vol. 22, pp. 455—476. https://doi.org/10.2307/2600982
20. Bhattacharya S. (1979). Imperfect information, dividend policy, and “the bird in the hand” fallacy. Bell Journal of Economics, Vol. 10, No. 1, pp. 259—270. https://doi.org/10.2307/3003330
21. Black F. (1976). The dividend puzzle. Journal of Portfolio Management, Vol. 2, No. 2, pp. 5—8. https://doi.org/10.3905/jpm.1976.408558
22. Black F., Scholes M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, Vol. 81, No. 3, pp. 637—654. https://doi.org/10.1086/260062
23. Booth L., Zhou J. (2017). Dividend policy: A selective review of results from around the world. Global Finance Journal, Vol. 34, pp. 1—15. https://doi.org/10.1016/j.gfj.2017.07.002
24. Borokhovich K. A., Brunarski K. R., Harman Y., Kehr J. B. (2005). Dividends, corporate monitors and agency costs. The Financial Review, Vol. 40, No. 1, pp. 37—65. https://doi.org/10.1111/j.0732-8516.2005.00092.x
25. Bozos K., Nikolopoulos K., Ramgandhi G. (2011). Dividend signaling under economic adversity: Evidence from the London Stock Exchange. International Review of Financial Analysis, Vol. 20, No. 5, pp. 364—374. https://doi.org/10.1016/j.irfa.2011.07.003
26. Brav A., Graham J. R., Campbell R. H., Michaely R. (2005). Payout policy in the 21st century. Journal of Financial Economics. Vol. 77, No. 3, pp. 483—527. https://doi.org/10.1016/j.jfineco.2004.07.004
27. Brav A., Heaton J. B. (1997). The economic effects of prudent man laws: Empirical evidence from stock ownership dynamics. Unpublished manuscript, Duke University.
28. Brennan M. J., Thakor A. V. (1990). Shareholder preferences and dividend policy. Journal of Finance, Vol. 45, No. 4, pp. 993—1018. https://doi.org/10.1111/j.1540-6261.1990. tb02424.x
29. Campbell J., Yogo M. (2003). Efficient tests of stock return predictability. NBER Working Paper, No. 10026. https://doi.org/10.3386/w10026
30. Copeland T., Koller T., Murrin J. (2000). Valuation — Measuring and managing the value of companies. 3rd ed. New York: Wiley & Sons.
31. Crane A. D., Michenaud S., Weston J. (2013). The effect of institutional ownership on payout policy: A regression discontinuity design approach. Unpublished manuscript, Rice University. Damodaran A. (2008). Dealing with risk: Investment analysis. Lecture Notes, New York University, Leonard N. Stern School of Business.
32. DeAngelo H., DeAngelo L., Skinner D. J. (2009). Corporate payout policy. Foundations and Trends in Finance, Vol. 3, No. 2—3, pp. 95—287. https://doi.org/10.1561/0500000020
33. Denis D. J., Osobov I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, Vol. 89, No. 1, pp. 62—82. https://doi.org/10.1016/j.jfineco.2007.06.006
34. Dewenter K. L., Warther V. A. (1998). Dividends, asymmetric information, and agency conflicts: Evidence from a comparison of the dividend policies of Japanese and U.S. firms. Journal of Finance, Vol. 53, No. 3, pp. 879—904. https://doi.org/10.1111/0022-1082.00038
35. Dhaliwal D., Erickson M., Trezevant R. (1999). A test of the theory of tax clienteles for dividend policies. National Tax Journal, Vol. 52, No. 2, pp. 179—194.
36. Donaldson G. (1963). Financial goals: Management versus stockholders. Harvard Business Review, Vol. 41, pp. 116—129.
37. Farinha J. (2003). Dividend policy, corporate governance and the managerial entrenchment hypothesis: An empirical analysis. Journal of Business Finance & Accounting, Vol. 30, No. 9—10, pp. 1173—1209. https://doi.org/10.1111/j.0306-686X.2003.05624.x
38. Farre-Mensa J., Michaely R., Schmalz M. (2014). Payout policy. In: A. W. Lo, R. C. Merton (eds.). Annual review of financial economics, Vol. 6. Palo Alto, CA: Annual Reviews, pp. 75—134.
39. Firth M., Gao J., Shen J., Zhang Y. (2016). Institutional stock ownership and firms’ cash dividend policies: Evidence from China. Journal of Banking & Finance, Vol. 65, No. C, pp. 91—107. https://doi.org/10.1016/j.jbankfin.2016.01.009
40. Frankfurter G. M., Wood B. G. (2006). Dividend policy: Theory and practice. London: Academic Press.
41. Gill S., Obradovich D. J. (2012). Corporate governance, institutional ownership, and the decision to pay the amount of dividends: Evidence from USA. International Research Journal of Finance and Economics, Issue 97, pp. 60—71.
42. Graham J. R., Kumar A. (2006). Do dividend clienteles exist? Evidence on dividend preferences of retail investors. Journal of Finance, Vol. 61, No. 3, pp. 1305—1336. https://doi.org/10.1111/j.1540-6261.2006.00873.x
43. Grinstein Y., Michaely R. (2005). Institutional holdings and payout policy. Journal of Finance, Vol. 60, No. 3, pp. 1389—1426. https://doi.org/10.1111/j.1540-6261.2005.00765.x
44. Grullon G., Michaely R. (2012). Payout policy and product market competition. Unpublished manuscript, Cornell University. Grullon G., Michaely R., Swaminathan B. (2002). Are dividend changes a sign of firm maturity? Journal of Business, Vol. 75, No. 3, pp. 387—424. https://doi.org/10.1086/339889
45. Gugler K. (2003). Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment. Journal of Banking & Finance, Vol. 27, No. 7, pp. 1297—1321. https://doi.org/10.1016/S0378-4266(02)00258-3
46. Guttman I., Kadan O., Kandel E. (2010). Dividend stickiness and strategic pooling. Review of Financial Studies, Vol. 23, No. 12, pp. 4455—4495. https://doi.org/10.1093/rfs/hhq096
47. Hail L., Tahoun A., Wang C. (2014). Dividend payouts and information shocks. Journal of Accounting Research, Vol. 52, No. 2, pp. 403—456. https://doi.org/10.1111/1475-679X.12040
48. Harada K., Nguyen P. (2009). Ownership concentration and dividend policy in Japan. Managerial Finance, Vol. 37, No. 4, pp. 362—379. https://doi.org/10.1108/03074351111115313
49. Healy P. M., Palepu K. G. (1988). Earnings information conveyed by dividend initiations and omissions. Journal of Financial Economics, Vol. 21, No. 2, pp. 149—176. https://doi.org/10.1016/0304-405X(88)90059-1
50. Hoberg G., Phillips G., Prabhala N. (2014). Product market threats, payouts, and financial flexibility. Journal of Finance, Vol. 69, No. 1, pp. 293—324. https://doi.org/10.1111/jofi.12050
51. Hossain F., Rashel S., Akterujjaman S. M. (2014). Impact of firm specific factors on cash dividend payment decisions: Evidence from Bangladesh. International Review of Business Research Papers, Vol. 10, No. 2, pp. 62—80. https://doi.org/10.21102/irbrp.2014.09.102.05
52. Hotchkiss E. S., Lawrence S. (2002). Empirical evidence on the existence of dividend clienteles. Unpublished manuscript, Boston College.
53. Huang T., Wu F., Yu J., Zhang B. (2015). Political risk and dividend policy: Evidence from international political crises. Journal of International Business Studies, Vol. 47, No. 1, pp. 574—595. https://doi.org/10.1057/jibs.2015.2
54. Huda N., Abdullah M. N. (2014). Relationship between ownership structure and dividend policy: Empirical evidence from Chittagong Stock Exchange. World Review of Business Research, Vol. 4, No. 3, pp. 14—34.
55. Jensen M. C., Meckling W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, Vol. 3, No. 4, pp. 305—360. https://doi.org/10.1016/0304-405X(76)90026-X
56. Jensen M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, Vol. 76, No. 2, pp. 323—329.
57. Jinho J. (2013). Determinants of dividend smoothing in emerging market: The case of Korea. Emerging Markets Review, Vol. 17, pp. 76—88. https://doi.org/10.1016/j.ememar.2013.08.007
58. Joliet R., Muller A. (2015). Dividends and foreign performance signaling. Multinational Finance Journal, Vol. 19, No. 2, pp. 77—107. https://doi.org/10.17578/19-2-1
59. Khan T. S. (2006). Company dividends and ownership structure: Evidence from UK panel data. Economic Journal, Vol. 116, No. 510, pp. 172—189. https://doi.org/10.1111/ j.1468-0297.2006.01082.x
60. Kim S., Park S. H., Suh J. (2018). A J-shaped cross-sectional relation between dividends and firm value. Journal of Corporate Finance, Vol. 48, pp. 857—877. https://doi.org/10.1016/j.jcorpfin.2016.09.010
61. Kose J., Williams J. (1985). Dividends, dilution, and taxes: A signalling equilibrium. Journal of Finance, Vol. 40, No. 4, pp. 1053—1070. https://doi.org/10.1111/j.1540-6261.1985.tb02363.x
62. Kumar P. (1988). Shareholder-manager conflict and the information content of dividends. Review of Financial Studies, Vol. 1, No. 2, pp. 111—136. https://doi.org/10.1093/rfs/1.2.111
63. La Porta R., Lopez-de-Silanes F., Shleifer A., Vishny R. (2000). Agency problems and dividend policy around the world. Journal of Finance, Vol. 55, No. 1, pp. 1—33. https://doi.org/10.1111/0022-1082.00199
64. Lie E. (2000). Excess funds and agency problems: An empirical study of incremental cash disbursements. Review of Financial Studies, Vol. 13, No. 1, pp. 219—248. https://doi.org/10.1093/rfs/13.1.219
65. Lintner J. (1956). Distribution of incomes of corporations among dividends, retained earnings and taxes. American Economic Review, Vol. 46, No. 2, pp. 97—113.
66. Loderer C., Mauer D. C. (1992). Corporate dividends and seasoned equity issues: An empirical investigation. Journal of Finance, Vol. 47, No. 1, pp. 201—225. https:// doi.org/10.1111/j.1540-6261.1992.tb03983.x
67. Magni C., Velez-Pareja I. (2009). Potential dividends versus actual cash flows in firm valuation. The ICFAI Journal of Applied Finance, Vol. 15, No. 7, pp. 51—66.
68. Mann S. V. (1989). The dividend puzzle: A progress report. Quarterly Journal of Business and Economics, Vol. 28, No. 3, pp. 3—35.
69. Miller M., Modigliani F. (1961). Dividend policy, growth and the valuation of shares. Journal of Business, Vol. 34, No. 4, pp. 411—433. https://doi.org/10.1086/294442
70. Miller M., Rock K. (1985). Dividend policy under asymmetric information. Journal of Finance, Vol. 40, No. 4, pp. 1031—1051. https://doi.org/10.1111/j.1540-6261.1985.tb02362.x
71. Miller M., Scholes M. (1978). Dividends and taxes. The Journal of Financial Economics, Vol. 6, No. 4, pp. 333—364. https://doi.org/10.1016/0304-405X(78)90009-0
72. Mirza H. H., Azfa T. (2010). Ownership structure and cash flows as determinants of corporate dividend policy in Pakistan. International Business Research, Vol. 3, No. 3, pp. 210—221. https://doi.org/10.5539/ibr.v3n3p210
73. Nissim D., Ziv A. (2001). Dividend changes and future profitability. Journal of Finance, Vol. 55, No. 6, pp. 2111—2133. https://doi.org/10.1111/0022-1082.00400
74. Perez-Gonzalez F. (2002). Large shareholders and dividends: Evidence from U.S. tax reforms. Available at SSRN: http://dx.doi.org/10.2139/ssrn.337640
75. Sсhiller R. J. (1981). Do stock prices move too much to be justified by subsequent changes in dividends? American Economic Review, Vol. 71, No. 3, pp. 421—436. https://doi.org/10.3386/w0456
76. Seida J. A. (2001). Evidence of tax-clientele-related trading following dividend increases. Journal of the American Taxation Association, Vol. 23, No. 1, pp. 1—21. https:// doi.org/10.2308/jata.2001.23.s-1.1
77. Shefrin H. M., Thaler R. H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry, Vol. 26, No. 4, pp. 609—643. https://doi.org/10.1111/j.1465-7295.1988.tb01520.x
78. Short H., Zhang H., Keasey K. (2002). The link between dividend policy and institutional ownership. Journal of Corporate Finance, Vol. 8, No. 2, pp. 105—122. https:// doi.org/10.1016/S0929-1199(01)00030-X
79. Wang M.-H., Ke M.-C., Lin F.-Y., Huang Y.-S. (2016). Dividend policy and the catering theory: Evidence from the Taiwan Stock Exchange. Managerial Finance, Vol. 42, No. 10, pp. 999—1016. https://doi.org/10.1108/MF-05-2015-0132
Review
For citations:
Abramov A.E., Radygin A.D., Chernova M.I., Entov R.M. The “dividend puzzle” and the Russian stock market. Part 1. Voprosy Ekonomiki. 2020;(1):66-92. (In Russ.) https://doi.org/10.32609/0042-8736-2020-1-66-92
Views:
2626
Email this article 
