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Shareholder and Managerial Behavior : = Implications for Dividend Policy and Firm Valuation.

Record Type:	Language materials, manuscript : Monograph/item
Title/Author:	Shareholder and Managerial Behavior :/
Reminder of title:	Implications for Dividend Policy and Firm Valuation.
Author:	Ghosh, Chinmoy.
Description:	1 online resource (187 pages)
Notes:	Source: Dissertations Abstracts International, Volume: 47-07, Section: A.
Contained By:	Dissertations Abstracts International47-07A.
Subject:	Finance. -
Online resource:	click for full text (PQDT)
ISBN:	9798641079325

Shareholder and Managerial Behavior : = Implications for Dividend Policy and Firm Valuation.
Ghosh, Chinmoy.

Shareholder and Managerial Behavior :Implications for Dividend Policy and Firm Valuation. - 1 online resource (187 pages)

Source: Dissertations Abstracts International, Volume: 47-07, Section: A.

Thesis (Ph.D.)--The Pennsylvania State University, 1986.

Includes bibliographical references

This thesis addresses the issue of investors' and managers' preference for cash dividend payments despite (1) higher taxes, and (2) the flotation costs of new issues of securities to finance growth opportunities. Self-Control Theory is invoked to argue that cash dividends help restrain investors' urge for myopic consumption of equity capital. It is postulated that in their attempt to avoid access to capital, investors choose risky portfolios such that the portfolio interest and dividend income matches their consumption needs. The analysis of the portfolio choice problem under this self-control rule indicates that the irrelevancy of dividend policy holds if the adverse tax effects of dividends are offset by the self-control benefits of cash. The point of irrelevancy represents the level of dividends where the value of the firm is maximized. Regret Theory motivates the search for some insight into managers' persistence with cash dividends despite the tax penalty and the costs of acquiring investment funds from the capital market. It is argued that failure (success) of internally financed investment opportunities causes post-decision regret (pride) to managers. Assuming "regret" to be an attribute of the managerial utility function, it is concluded that the decisions to (1) simultaneously pay dividends and raise venture capital from external sources, and (2) pay dividends in the face of poor earnings by borrowing, may be attributed to managers' regret-aversion in choices under uncertainty. The model implies that decreases (increases) in dividends signal the firms' access to (lack of) growth opportunities, causing upward (downward) adjustment in stock prices. This hypothesis is also consistent with Residual Theory of dividends. The hypotheses are tested through an analysis of dividend cuts/omissions on the New York Stock Exchange and the American Stock Exchange during the period 1962-1984. Common stock returns on announcement of earnings-induced dividend cuts/omissions are contrasted with common stock returns following announcement of growth-induced dividend decreases. The data reveals weak support for the implications of Self-Control Theory. However, the hypotheses from Regret and Residual Theory are violated. It transpires that due to moral hazard problems between shareholders and managers, even growth motivated dividend cuts/omissions are perceived as negative signals of the firm's future prospects.

Electronic reproduction.
Ann Arbor, Mich. :
ProQuest,
2024

Mode of access: World Wide Web

ISBN: 9798641079325Subjects--Topical Terms:

559073
Finance.
Index Terms--Genre/Form:

554714
Electronic books.

Shareholder and Managerial Behavior : = Implications for Dividend Policy and Firm Valuation.
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500 $a Source: Dissertations Abstracts International, Volume: 47-07, Section: A.
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504 $a Includes bibliographical references
520 $a This thesis addresses the issue of investors' and managers' preference for cash dividend payments despite (1) higher taxes, and (2) the flotation costs of new issues of securities to finance growth opportunities. Self-Control Theory is invoked to argue that cash dividends help restrain investors' urge for myopic consumption of equity capital. It is postulated that in their attempt to avoid access to capital, investors choose risky portfolios such that the portfolio interest and dividend income matches their consumption needs. The analysis of the portfolio choice problem under this self-control rule indicates that the irrelevancy of dividend policy holds if the adverse tax effects of dividends are offset by the self-control benefits of cash. The point of irrelevancy represents the level of dividends where the value of the firm is maximized. Regret Theory motivates the search for some insight into managers' persistence with cash dividends despite the tax penalty and the costs of acquiring investment funds from the capital market. It is argued that failure (success) of internally financed investment opportunities causes post-decision regret (pride) to managers. Assuming "regret" to be an attribute of the managerial utility function, it is concluded that the decisions to (1) simultaneously pay dividends and raise venture capital from external sources, and (2) pay dividends in the face of poor earnings by borrowing, may be attributed to managers' regret-aversion in choices under uncertainty. The model implies that decreases (increases) in dividends signal the firms' access to (lack of) growth opportunities, causing upward (downward) adjustment in stock prices. This hypothesis is also consistent with Residual Theory of dividends. The hypotheses are tested through an analysis of dividend cuts/omissions on the New York Stock Exchange and the American Stock Exchange during the period 1962-1984. Common stock returns on announcement of earnings-induced dividend cuts/omissions are contrasted with common stock returns following announcement of growth-induced dividend decreases. The data reveals weak support for the implications of Self-Control Theory. However, the hypotheses from Regret and Residual Theory are violated. It transpires that due to moral hazard problems between shareholders and managers, even growth motivated dividend cuts/omissions are perceived as negative signals of the firm's future prospects.
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