Fundamentals or market movements: What drives the dividend decision?

Savov, Sava ; Weber, Martin

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URN: urn:nbn:de:bsz:180-madoc-17834
Document Type: Working paper
Year of publication: 2006
The title of a journal, publication series: None
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSB (Business Studies)
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject: 330 Economics
Classification: JEL: G35 ,
Subject headings (SWD): Dividendenpolitik , Gewinnanteil
Keywords (English): Dividend Policy , Dividend Increases , Market Movements
Abstract: This paper investigates the determinants of the dividend decision. We examine the impact of fundamental variables like earnings, size, or leverage, as well as the effect of stock price movements. Using a sample of German companies, we find a negative relation between the probability for dividend increases and the performance of the firm's shares. Dividend increasing companies performed worse than the overall stock market or corporations that keep dividends constant. In addition, we demonstrate that the documented pattern cannot be explained by models of asymmetric information or catering considerations. Thus, our results suggest that in Germany, where share repurchases were highly restricted, dividends are increased as a compensation for the poor returns of the current shareholders.

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