Dividends Case Study

Disappearing dividends: Changing Firm Characteristics or Lower Propensity to Pay? by Eugene F. Fama started the arguments by revealing the history statistics that the number of firms has been increased in general ever since 1973, while during the period of time between 1973 and 1978, there is relatively more dividend payers, however, the number has been relentlessly decreasing from then, to 20.8% in 1999. Contrarily, the number of non-dividend payers has been growing ever since. Such a great falling percentage raised a crucial question that whether the decrease of paying dividends to shareholders is due to the changing firm characteristics or simply there is less trend to make payments. The paper examined three significant characteristics that are most likely to affect the

However, from the perspective of former payers, only a few have the tendency of resuming dividends payment, as most of them choose not to ever since. Besides, those changing characteristics and lower propensity also has certain effects to non-payer that have never paid any dividend before, which they are even further less likely to initial any dividends.

In addition, Fama EF also conclude that more and more listed firms choose not to pay dividend is mainly due to the tax disadvantage. Although there is increasing number of stock repurchase showing up. Fama EF mentioned that it cannot be seen as a replacement of dividend under two circumstances, i) when it’s reissued to employee stock ownership plans or executive stock options, ii) when its reissued in a merger case.

The perceived benefits of dividends are not seen as much than before, other reasons like lower transactions costs for selling tocks, governance techniques to reduce the reliance on dividends as a means of corporate discipline, and clientele effect that some stockholders prefer capital gain over