Are Investment Opportunities Associated with Dividend Reduction?: Evidence from Korea

• 발행기관: 한국무역연구원
• 저자명: Jeong-mo Kim
• 간행물 정보: 『무역연구』제18권 제1호, 75~94쪽, 전체 20쪽
• 주제분류: 경제경영 > 무역학
• 파일형태: PDF
• 발행일자: 2022.02.28

영문 초록

Purpose This paper examines associations among firm dividend reductions, investment opportunities(IOS), and share repurchases(SRP). Also, I examine the association between these factors and future operating performance. Design/Methodology/Approach This paper uses un-balanced panel data of 21,453 firm-year observations of non-financial Korean listed firms from 2003 to 2018. Findings Empirical evidence suggests that firms with higher IOS are more likely to reduce dividends to retain internally generated capital to prevent sub-optimal investments, while SRPs have a substitution effect on dividends in the dividend reducing context, and the effect is more pronounced with a less flexible SRP method. Also, dividend reductions associated with higher IOS are likely followed by enhanced operating performance. Additional tests suggest that the signaling effect of SRP varies according to the IOS among dividend-reducing entities over the long-run horizon. Research Implications Dividend reductions have been considered a ‘last resort’ for corporate managers, and thus manager reluctance to reduce dividends is taken for granted. However, there are firms reducing dividends despite good operating performance. This study provides a clue of such a phenomenon in practice.

목차

Ⅰ. Introduction

Ⅱ. Literature Review and Hypotheses Development

Ⅲ. Research Design

Ⅳ. Empirical Results

Ⅴ. Conclusion

키워드

Dividend Reduction Investment Opportunity Set Share Repurchases Signalling Effect