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Market responses to cash dividends distributed from capital reserves

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  • Liu, Yen-Yu
  • Lee, Pin-Sheng

Abstract

Companies were once only allowed to distribute cash dividends from retained earnings. How will markets respond if they are allowed to distribute cash dividends from capital reserves? In Taiwan, companies have recently been permitted to directly distribute cash dividends from capital reserves instead of retained earnings. This study provides a new approach to the utilization of capital reserves. The findings can be summarized as follows: (1) Just like traditional cash dividends distributed from retained earnings, variations in the dividend payout ratio are positively correlated with market responses if cash dividends are distributed from capital reserves; and (2) markets present a lower evaluation of cash dividends distributed from capital reserves than those distributed from retained earnings.

Suggested Citation

  • Liu, Yen-Yu & Lee, Pin-Sheng, 2022. "Market responses to cash dividends distributed from capital reserves," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003895
    DOI: 10.1016/j.frl.2021.102389
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital reserves; Cash dividends; Dividend policy;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • 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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