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Dividend Policy And The Life Cycle Hypothesis: Evidence From Taiwan

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  • Ming-Hui Wang
  • Mei-Chu Ke
  • Day-Yang Liu
  • Yen-Sheng Huang

Abstract

This paper examines the dividend policy for firms listed on the Taiwan Stock Exchange and test the life cycle hypothesis. The sample involves 6031 observations of dividend payments over the 16-year period 1992-2007. Consistent with the prediction of the life cycle hypothesis, the results indicate that dividend payers (cash dividends, stock dividends, or both) are associated with higher profitability, higher asset growth rate, and higher market-to-book ratio than non-payers (none dividends). The median return on assets (ROA) is 7.03% for dividend payers and -0.93% for non-payers. Similarly, the median market-to-book ratio is 1.69 for dividend payers as opposed to 0.80 for non-payers. Moreover, the results indicate that stock-dividend payers are associated with higher asset growth rate, but lower ratio of retained earnings to total equity than those for cash-dividend payers. In particular, stock-dividend payers are associated with higher asset growth rate and lower return on assets, lower retained to total equity ratio than those for cash-dividend payers. These results are consistent with the life cycle hypothesis of dividend payment in that younger firms with higher growth potential but lower profitability tend to distribute more stock dividends than cash dividends. When firms become more mature as characterized by lower growth potential but higher profitability tend to distribute more cash dividends as opposed to stock dividends.

Suggested Citation

  • Ming-Hui Wang & Mei-Chu Ke & Day-Yang Liu & Yen-Sheng Huang, 2011. "Dividend Policy And The Life Cycle Hypothesis: Evidence From Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(1), pages 33-52.
  • Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:1:p:33-52
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    References listed on IDEAS

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    Cited by:

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    3. Trinh, Quoc Dat & Haddad, Christian & Tran, Kim Thuan, 2022. "Financial reporting quality and dividend policy: New evidence from an international level," International Review of Financial Analysis, Elsevier, vol. 80(C).
    4. Mehmet Levent Erdaş & Emel Bachá Sımoes, 2020. "The Relationship between Audit Mechanisms and Dividend Payout Policy within the Framework of Corporate Governance: The Case of Turkey," Journal of Economy Culture and Society, Istanbul University, Faculty of Economics, vol. 62(62), pages 255-284, December.

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    More about this item

    Keywords

    dividend policy; cash dividend; stock dividend; life cycle hypothesis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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