股票市场流动性与公司股利政策[外文翻译]

外文翻译

Stock Market Liquidity and Firm Dividend Policy Material Source: Journal of Financial and Quantitative Analysis

Author: Suman Banerjee;Viadimir A Cate;Paul A Spindt

Firms’ dividend policies continue to puzzle financial researchers. In this paper, we argue that investor demand for stocks paying cash dividends is positively related to the trading friction that investors face when creating homemade dividends. We further hypothesize that the likelihood a firm will pay cash dividends is positively related to investor demand for dividend payments and therefore inversely related to the market liquidity of the firm’s stock.Examining the empirical evidence, we find strong support for our hypothesis.

In their seminal work, Miller and Modigliani (1961) formally developed the dividend irrelevance hypothesis. In perfect capital markets populated by rational investors, a firm’s value is solely a function of the firm’s investment opportunities and is independent of the firm’s payout policy. A large body of theoretica l work has tried to evaluate the importance that managers and investors attach to dividend policy in light of the irrelevance proposition. The starting point of these studies is to question some of the assumptions that characterize the perfect capital markets hypothesized by Miller and Modigliani.

One notable assumption of the dividend irrelevance proposition, and one central to this paper, is that trading is frictionless. In perfect markets, investors can instantaneously invest or liquidate their investment in any stock without incurring any direct or indirect costs of trading and without changing the price of the underlying security. In markets with no trading friction, rational investors with liquidity needs can create homemade dividends at no cost by selling an appropriate amount of their holdings in the firm. As a result, they will be indifferent between receiving a dollar of dividend and selling a dollar’s worth of their investment.

In markets with trading friction, stocks that pay cash dividends allow investors to satisfy their liquidity needs with little or no trading in the stock and thus enable them to avoid trading friction. As a result, investors with current or anticipated future liquidity needs may have a preference for dividend paying stocks. This preference will be positively related to the level of trading friction so that higher

(lower) trading friction will lead to higher (lower) demand for cash dividends relative to homemade dividends. Dong, Robinson, and Veld (2003) present survey evidence that retail investors want dividends, partly because their costs of cashing in dividends are lower than the transaction costs involved in selling shares.

It is important to address the question of how investor demand for dividends translates into actual dividend policy. On the one hand, existing literature argues that stock market liquidity affects the valuation of firms both in the cross-section and through time.3 In this literature, stocks with higher liquidity levels (i.e., lower trading friction) trade at a premium and have lower expected returns relative to stocks with lower liquidity levels (i.e., higher trading friction). Firms, however, can pay cash dividends, reduce investor dependence on the liquidity of the market, and therefore raise their valuations —an option more valuable for firms with higher discount rates due to lower liquidity levels. Indeed, Baker and Wurgler (2004a, 2004b) present significant evidence that firms consider valuation effects when choosing a dividend policy. On the other hand, it is also possible that investors directly enforce the desired dividend policy, as suggested by La Porta, Lopez-de-Silanes, Shleifer, and Vishny (2000).

While the possibility of a link between stock market liquidity and the dividend policy ofthe firm dates at least back to Miller and Modigliani (1961), current literature provides little direct empirical evidence on that issue. Some indirect evidence, however, is consistent with our hypothesis. For example, Long (1978) documents that between 1956 and 1976 the cash dividend class of shares of Citizens Utilities Company on average sold at a premium to the stock dividend class. Subsequent work by Poterba (1986) shows that the two classes of shares trade at similar prices for the 1976-1984 period. The “disappearing” premium on the cash dividend shares is consistent with an increase in the liquidity of the market in that period.

Nevertheless, the question of whether stock market liquidity has an incremental impact on the dividend policy of the firm remains largely an empirical one and its investigation is the focus of the current study. We perform our analysis while taking into consideration firm size, profitability, and growth opportunities. The necessity to control for these variables arises for at least two reasons. First, their use as determinants of dividend policy is consistent with the role of dividends in controlling the agency costs of free cash flow (Easterbrook, 1984; Jensen, 1986) and with a pecking-order model where firms avoid issuing securities due to asymmetric