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A macro-analysis of financial decisions: An examination of special dividend announcements

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  • Beladi, Hamid
  • Chao, Chi Chur
  • Hu, May

Abstract

This paper investigates macro-level explanations for why firms pay special dividends. We find both the business cycle and market condition affect the propensity and abnormal returns of special dividends. Firms are more likely to announce special dividends in market or economic downturns than upturns. They tend to use additional cash for business growth in expansions and distribute it to reduce agency costs in contractions. The signaling effect of special dividends is stronger and companies with these announcements are better performers in recessions than in expansions. This research sheds light on and enhances the understanding of why firms disburse extra cash dividends at the aggregate level.

Suggested Citation

  • Beladi, Hamid & Chao, Chi Chur & Hu, May, 2016. "A macro-analysis of financial decisions: An examination of special dividend announcements," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 162-181.
    • Handle: RePEc:eee:finana:v:48:y:2016:i:c:p:162-181
    DOI: 10.1016/j.irfa.2016.09.015
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    Cited by:

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    3. Booth, Laurence & Wang, Mengying & Zhou, Jun, 2019. "Import competition and financial flexibility: Evidence from corporate payout policy," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 382-396.
    4. Hu, May & Chao, Chi-Chur & Malone, Chris & Young, Martin, 2017. "Real determinants of stock split announcements," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 574-598.
    5. Beladi, Hamid & Deng, Jie & Hu, May, 2021. "Cash flow uncertainty, financial constraints and R&D investment," International Review of Financial Analysis, Elsevier, vol. 76(C).
    6. Hu, May & Tuilautala, Mataiasi & Kang, Yuni, 2019. "Bandwagon effect: Special dividend payments," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 339-363.
    7. Baker, H. Kent & Kumar, Satish & Goyal, Kirti & Sharma, Anuj, 2021. "International review of financial analysis: A retrospective evaluation between 1992 and 2020," International Review of Financial Analysis, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Special dividends; Market driven; Business cycle;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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