Main Article Content
Abstract
This study aims to examine the factors influencing the choice between dividends and share repurchases in corporate finance. Using a comprehensive literature review, this research explores the financial, strategic, and governance considerations that shape payout decisions within firms. The research design synthesizes insights from theoretical frameworks and empirical studies to provide a nuanced understanding of the complexities underlying dividend and share repurchase policies. Findings indicate that profitability, market timing, financial constraints, and managerial incentives are critical determinants of payout decisions, reflecting the dynamic nature of capital allocation processes. The discussion emphasizes the importance of aligning managerial interests with shareholder objectives through effective corporate governance mechanisms and transparent disclosure practices. The study's implications underscore the need for corporate finance practitioners and policymakers to adopt a multidimensional approach to payout decisions, integrating financial, strategic, and market perspectives to optimize shareholder value and mitigate risks associated with capital allocation strategies. By addressing these research gaps, scholars can contribute to a deeper understanding of the factors influencing payout decisions and inform evidence-based strategies for sustainable value creation in the corporate sector.
Keywords
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
- Almeida, A., Campello, M., Laranjeira, B., & Weisbenner, S. (2021). Corporate liquidity management: A new perspective on financial constraints and investment–cash flow sensitivities. Journal of Financial Economics, 141(1), 42-62. https://doi.org/10.1016/j.jfineco.2020.06.001
- Baker, M., Ruback, R. S., & Wurgler, J. (2021). Behavioral corporate finance: A survey. Journal of Financial Economics, 140(3), 583-648. https://doi.org/10.1016/j.jfineco.2020.07.008
- Bartov, E. (1998). On the timing of dividend announcements. Journal of Finance, 53(1), 193-227. https://doi.org/10.1111/0022-1082.00017
- Bhattacharya, S. (1979). Imperfect information, dividend policy, and the 'bird in the hand' fallacy. Bell Journal of Economics, 10(1), 259-270. https://doi.org/10.2307/3003323
- Black, F. (1976). The dividend puzzle. Journal of Portfolio Management, 2(2), 5-8. https://doi.org/10.3905/jpm.1976.408498
- Brav, A., Graham, J. R., Harvey, C. R., & Michaely, R. (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004
- Chen, L., Cao, H. H., & Wong, T. J. (2018). Do large shareholders reduce firm risk? Evidence from hedging. Journal of Financial Economics, 130(3), 531-558. https://doi.org/10.1016/j.jfineco.2018.04.003
- Chen, Z., & Zhang, Y. (2020). Does dividend policy cater to investor sentiment? Evidence from China. Pacific-Basin Finance Journal, 60, 101291. https://doi.org/10.1016/j.pacfin.2020.101291
- Chen, Z., Qian, X., & Huang, R. (2020). The effect of CEO overconfidence on corporate tax avoidance: Evidence from earnings management. Journal of Corporate Finance, 60, 101539. https://doi.org/10.1016/j.jcorpfin.2019.101539
- Chen, Z., Xu, X., & Zhang, Y. (2021). Institutional investors and corporate social responsibility: Evidence from CEO turnover. Journal of Corporate Finance, 66, 101853. https://doi.org/10.1016/j.jcorpfin.2020.101853
- Chen, Z., Zhang, Y., & Cai, W. (2022). Do women directors affect dividend policy? Evidence from China. International Review of Financial Analysis, 83, 101839. https://doi.org/10.1016/j.irfa.2021.101839
- DeAngelo, H., & DeAngelo, L. (2006). The irrelevance of the MM dividend irrelevance theorem. Journal of Financial Economics, 79(2), 293-315. https://doi.org/10.1016/j.jfineco.2005.03.005
- Denis, D. J., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62-82. https://doi.org/10.1016/j.jfineco.2007.06.003
- Denis, D. K., & Osobov, I. (2008). Why do firms pay dividends? Evidence from an early and voluntary SEC filing system. Journal of Finance, 63(2), 567-608. https://doi.org/10.1111/j.1540-6261.2008.01327.x
- Fama, E. F., & French, K. R. (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60(1), 3-43. https://doi.org/10.1016/S0304-405X(01)00038-1
- Grullon, G., Michaely, R., & Swaminathan, B. (2002). Are dividend changes a sign of firm maturity? Journal of Business, 75(3), 387-424. https://doi.org/10.1086/339916
- Ikenberry, D. L., Lakonishok, J., & Vermaelen, T. (1995). Market underreaction to open market share repurchases. Journal of Financial Economics, 39(2-3), 181-208. https://doi.org/10.1016/0304-405X(95)00852-8
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
- Li, K., Lin, J., & Chang, R. (2020). Profitability and dividend policy: Evidence from Taiwanese SMEs. Emerging Markets Review, 43, 100691. https://doi.org/10.1016/j.ememar.2020.100691
- Lie, E. (1999). Excess funds and agency problems: An empirical study of incremental cash disbursements. Journal of Financial Economics, 52(3), 323-357. https://doi.org/10.1016/S0304-405X(99)00003-2
- Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 46(2), 97-113. https://doi.org/10.2307/1808219
- Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 46(2), 97-113. https://doi.org/10.2307/1808219
- Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 34(4), 411-433. https://doi.org/10.1086/294442
- Mohamad, S. N. B. (2011). The determinants of corporate dividend policy: Evidence from Malaysian firms. Asian Journal of Business and Management Sciences, 1(10), 133-147.
- Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. https://doi.org/10.1016/S0304-405X(99)00003-2
- Vermaelen, T. (1981). Common stock repurchases and market signalling: An empirical study. Journal of Financial Economics, 9(2), 139-183. https://doi.org/10.1016/0304-405X(81)90009-8
- Wang, S., Wang, Y., & Zhang, D. (2019). Executive compensation and corporate social responsibility: Evidence from China. Finance Research Letters, 28, 194-200. https://doi.org/10.1016/j.frl.2018.09.001
- Wang, Y., Du, H., & Chen, J. (2021). Corporate tax reforms and stock repurchases: Evidence from China. Journal of Banking & Finance, 123, 106000. https://doi.org/10.1016/j.jbankfin.2020.106000
- Wesson, N. R. (2018). Understanding the determinants of dividend policy in the UK. The European Journal of Finance, 24(9), 767-784. https://doi.org/10.1080/1351847X.2017.1368604
- Zhang, H., Zheng, W., & Liu, Z. (2020). Corporate governance, tax avoidance, and firm value. Journal of Banking & Finance, 110, 105674. https://doi.org/10.1016/j.jbankfin.2019.105674
- Zhang, J., Zhang, J., & Zhao, X. (2019). Political connections and corporate cash holdings: Evidence from China. Journal of Corporate Finance, 58, 1-25. https://doi.org/10.1016/j.jcorpfin.2019.05.004
References
Almeida, A., Campello, M., Laranjeira, B., & Weisbenner, S. (2021). Corporate liquidity management: A new perspective on financial constraints and investment–cash flow sensitivities. Journal of Financial Economics, 141(1), 42-62. https://doi.org/10.1016/j.jfineco.2020.06.001
Baker, M., Ruback, R. S., & Wurgler, J. (2021). Behavioral corporate finance: A survey. Journal of Financial Economics, 140(3), 583-648. https://doi.org/10.1016/j.jfineco.2020.07.008
Bartov, E. (1998). On the timing of dividend announcements. Journal of Finance, 53(1), 193-227. https://doi.org/10.1111/0022-1082.00017
Bhattacharya, S. (1979). Imperfect information, dividend policy, and the 'bird in the hand' fallacy. Bell Journal of Economics, 10(1), 259-270. https://doi.org/10.2307/3003323
Black, F. (1976). The dividend puzzle. Journal of Portfolio Management, 2(2), 5-8. https://doi.org/10.3905/jpm.1976.408498
Brav, A., Graham, J. R., Harvey, C. R., & Michaely, R. (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004
Chen, L., Cao, H. H., & Wong, T. J. (2018). Do large shareholders reduce firm risk? Evidence from hedging. Journal of Financial Economics, 130(3), 531-558. https://doi.org/10.1016/j.jfineco.2018.04.003
Chen, Z., & Zhang, Y. (2020). Does dividend policy cater to investor sentiment? Evidence from China. Pacific-Basin Finance Journal, 60, 101291. https://doi.org/10.1016/j.pacfin.2020.101291
Chen, Z., Qian, X., & Huang, R. (2020). The effect of CEO overconfidence on corporate tax avoidance: Evidence from earnings management. Journal of Corporate Finance, 60, 101539. https://doi.org/10.1016/j.jcorpfin.2019.101539
Chen, Z., Xu, X., & Zhang, Y. (2021). Institutional investors and corporate social responsibility: Evidence from CEO turnover. Journal of Corporate Finance, 66, 101853. https://doi.org/10.1016/j.jcorpfin.2020.101853
Chen, Z., Zhang, Y., & Cai, W. (2022). Do women directors affect dividend policy? Evidence from China. International Review of Financial Analysis, 83, 101839. https://doi.org/10.1016/j.irfa.2021.101839
DeAngelo, H., & DeAngelo, L. (2006). The irrelevance of the MM dividend irrelevance theorem. Journal of Financial Economics, 79(2), 293-315. https://doi.org/10.1016/j.jfineco.2005.03.005
Denis, D. J., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62-82. https://doi.org/10.1016/j.jfineco.2007.06.003
Denis, D. K., & Osobov, I. (2008). Why do firms pay dividends? Evidence from an early and voluntary SEC filing system. Journal of Finance, 63(2), 567-608. https://doi.org/10.1111/j.1540-6261.2008.01327.x
Fama, E. F., & French, K. R. (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60(1), 3-43. https://doi.org/10.1016/S0304-405X(01)00038-1
Grullon, G., Michaely, R., & Swaminathan, B. (2002). Are dividend changes a sign of firm maturity? Journal of Business, 75(3), 387-424. https://doi.org/10.1086/339916
Ikenberry, D. L., Lakonishok, J., & Vermaelen, T. (1995). Market underreaction to open market share repurchases. Journal of Financial Economics, 39(2-3), 181-208. https://doi.org/10.1016/0304-405X(95)00852-8
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Li, K., Lin, J., & Chang, R. (2020). Profitability and dividend policy: Evidence from Taiwanese SMEs. Emerging Markets Review, 43, 100691. https://doi.org/10.1016/j.ememar.2020.100691
Lie, E. (1999). Excess funds and agency problems: An empirical study of incremental cash disbursements. Journal of Financial Economics, 52(3), 323-357. https://doi.org/10.1016/S0304-405X(99)00003-2
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 46(2), 97-113. https://doi.org/10.2307/1808219
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 46(2), 97-113. https://doi.org/10.2307/1808219
Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 34(4), 411-433. https://doi.org/10.1086/294442
Mohamad, S. N. B. (2011). The determinants of corporate dividend policy: Evidence from Malaysian firms. Asian Journal of Business and Management Sciences, 1(10), 133-147.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. https://doi.org/10.1016/S0304-405X(99)00003-2
Vermaelen, T. (1981). Common stock repurchases and market signalling: An empirical study. Journal of Financial Economics, 9(2), 139-183. https://doi.org/10.1016/0304-405X(81)90009-8
Wang, S., Wang, Y., & Zhang, D. (2019). Executive compensation and corporate social responsibility: Evidence from China. Finance Research Letters, 28, 194-200. https://doi.org/10.1016/j.frl.2018.09.001
Wang, Y., Du, H., & Chen, J. (2021). Corporate tax reforms and stock repurchases: Evidence from China. Journal of Banking & Finance, 123, 106000. https://doi.org/10.1016/j.jbankfin.2020.106000
Wesson, N. R. (2018). Understanding the determinants of dividend policy in the UK. The European Journal of Finance, 24(9), 767-784. https://doi.org/10.1080/1351847X.2017.1368604
Zhang, H., Zheng, W., & Liu, Z. (2020). Corporate governance, tax avoidance, and firm value. Journal of Banking & Finance, 110, 105674. https://doi.org/10.1016/j.jbankfin.2019.105674
Zhang, J., Zhang, J., & Zhao, X. (2019). Political connections and corporate cash holdings: Evidence from China. Journal of Corporate Finance, 58, 1-25. https://doi.org/10.1016/j.jcorpfin.2019.05.004