How profitability and debt influence dividends’ payout policy in the U.K., France and Portugal

JEL Classifications: G32 – Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; G35 - Payout Policy;The goal of this thesis is to investigate how profitability and debt influence the dividends’ payout policy of companies of three European countries: Portugal, France and the U.K. Using work of La Porta et al. (2000) as a starting point, this thesis not only validates the “outcome model“ described by La Porta et al. (2000) but also finds two factors that affect dividends’ payout level: debt and activity type. By comparing companies’ dividend payout policy in the three countries, this thesis confirms that the U.K., a common law country, has the highest dividends level and that dividend payout policy is a consequence of effective investor protection by law, as claimed by La Porta et al. (2000). This thesis also subscribes the latter’s idea that in common law countries, fast growth firms pay lower dividends than slow growth firms, meaning that protected shareholders are willing to wait for their dividends when investment opportunities are good. Poorly protected investors seem to take whatever dividends they can get, regardless of investment opportunities. Testing the factors that might affect dividend payout level indicates that there is a positive relation between debt level and dividend policy, and that companies’ activity type influence dividends. The former, however, raises some controversy as it contradicts some of the findings of previous studies.O objectivo desta dissertação é investigar como é que a rentabilidade e o endividamento influenciam a política de distribuição de dividendos em três países europeus: Portugal, França e o Reino Unido. Utilizando o estudo de La Porta et al. (2000) como ponto de partida, esta dissertação não só confirma o “modelo de resultado” descrito por La Porta et al. (2000) mas também encontra dois factores que afectam o nível dos dividendos: o endividamento e o tipo de actividade. Comparando a política de dividendos nos três países, esta dissertação conclui que o Reino Unido, um país de direito anglo-saxónico, tem o nível de dividendos mais elevado e que a política de dividendos é consequência da protecção aos investidores pela lei, como reclamado por La Porta et al. (2000). Esta dissertação também confirma a ideia destes últimos que em países de lei tipo anglo-saxónica, empresas de crescimento rápido pagam menos dividendos que as empresas de crescimento lento, querendo isto dizer que accionistas mais protegidos estão dispostos a esperar pelos dividendos quando as oportunidades de crescimento são boas. Accionistas mal protegidos recebem apenas os dividendos que conseguem extrair da empresa, independentemente das oportunidades de investimento. Testando os factores que possam influenciar o nível de dividendos pago, verifica-se existir uma relação positiva entre o nível de endividamento e a política de dividendos, e que o tipo de actividade exercida pelas empresas influência os dividendos. A primeira, contudo, gera alguma controvérsia pois contradiz alguns resultados encontrados em estudos anteriores

Japan's Corporate returns on value and cost: a comprehensive look.

The paper documents that for 1974-95 the Japanese non-financials' return on cost, a measure of return on (direct) investment, is consistently higher than their return on value (an estimate of the expected return or cost of capital). Against conventional wisdom, when translated into USD terms, the Japanese cost of capital is actually higher than the U.S. counterpart. The paper further shows that as of the 90s the main-bank centered keirestu firms, with their internally disciplined corporate governance system, lost their traditional advantage of lower cost of capital, compared to the non-keiretsu firms. Examining corporate earnings, investment, and forms of financing reveals that, in recent years, keiretsu firms have become more liquidity constrained than non-keiretsu firms. Their investment drops dramatically, and while (also much reduced) retained cash earnings provide most of the financing, debt financing is replaced by more expensive new equity as the major source of outside financing. Non-keiretsu firms are suffering as well, but to a lesser degree, and are still able to finance their investment even with substantial short-term debts. The main-bank system seems starting to crumble following an over-investment episode in late-80s.Value;

Wrong-Termism, Right-Termism, and the Liability Structure of Investor Time Horizons

Do investor time horizons lead to inefficient business conduct in the real economy? An extensive finance literature analyzes whether particular practices (e.g., high frequency trading and stock buybacks) lead firms to operate with inefficiently myopic investment horizons, and an extensive legal literature considers the appropriateness of policy interventions. This Article joins those debates by charting the space of possibilities: what might be the causes of problematic time horizons? What solutions are available? One implication of this analysis is that there may be unexplored market-based solutions located on the liability side of investors’ balance sheets. This Article also argues that we should avoid characterizing the time horizon problem in a manner that subtly endorses some contested perspective on the appropriate time horizon. Rather than investigating excessive “short-termism” or “long-termism,” our starting point should be the broader category of “wrong-termism.