IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v43y2018i3p421-438.html
   My bibliography  Save this article

Do corporate directors ‘heap’ dividends? Evidence on dividend rounding and information uncertainty in Australian firms

Author

Listed:
  • Yoonsoo Nam

    (Carson College of Business, Washington State University, USA)

  • Scott J Niblock

    (School of Business and Tourism, Southern Cross University, Australia)

  • Elisabeth Sinnewe

    (CTF, Service Research Center, Karlstad University, Sweden)

  • Keith Jakob

    (College of Business, University of Montana, USA)

Abstract

In this study, we examine the extent of dividend heaping in Australian firms between 1976 and 2015. Our findings show that 27.39% of dividends greater than or equal to 2.5-cents are heaped in 2.5-cent intervals, while 70.90% of dividends less than 2.5-cents are heaped in 0.25-cent intervals. We find that the heaping phenomenon decreases over time and average dividend size increases. We also show that when establishing the likelihood of dividend heaping, stock return volatility and firm size are consistent with the information uncertainty hypothesis. Dividend heaping also appears to be influenced by firm-level characteristics that are inconsistent with the hypothesis. For instance, the likelihood of heaping increases with dividend size and firm age.

Suggested Citation

  • Yoonsoo Nam & Scott J Niblock & Elisabeth Sinnewe & Keith Jakob, 2018. "Do corporate directors ‘heap’ dividends? Evidence on dividend rounding and information uncertainty in Australian firms," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 421-438, August.
    • Handle: RePEc:sae:ausman:v:43:y:2018:i:3:p:421-438
    DOI: 10.1177/0312896218758838
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0312896218758838
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0312896218758838?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Christie, William G & Schultz, Paul H, 1994. "Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-1840, December.
    3. X. Frank Zhang, 2006. "Information Uncertainty and Stock Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 105-137, February.
    4. Aitken, Michael & Brown, Philip & Buckland, Christine & Izan, H. Y. & Walter, Terry, 1996. "Price clustering on the Australian Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 297-314, July.
    5. Grossman, Sanford J & Miller, Merton H & Cone, Kenneth R & Fischel, Daniel R & Ross, David J, 1997. "Clustering and Competition in Asset Markets," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 23-60, April.
    6. Baskin, Jonathan Barron, 1988. "The Development of Corporate Financial Markets in Britain and the United States, 1600–1914: Overcoming Asymmetric Information," Business History Review, Cambridge University Press, vol. 62(2), pages 199-237, July.
    7. Thaler, Richard H & Shefrin, H M, 1981. "An Economic Theory of Self-Control," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 392-406, April.
    8. repec:bla:jfinan:v:59:y:2004:i:3:p:1125-1165 is not listed on IDEAS
    9. Young M. Choi & Hyo K. Ju & Young K. Park, 2011. "Do dividend changes predict the future profitability of firms?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(4), pages 869-891, December.
    10. Lin, Tsui-Jung & Chen, Yi-Pei & Tsai, Han-Fang, 2017. "The relationship among information asymmetry, dividend policy and ownership structure," Finance Research Letters, Elsevier, vol. 20(C), pages 1-12.
    11. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    12. Laurence Booth & Bin Chang, 2011. "Information Asymmetry, Dividend Status, And Seo Announcement‐Day Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 34(1), pages 155-177, March.
    13. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," The Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
    14. Shefrin, Hersh M. & Statman, Meir, 1984. "Explaining investor preference for cash dividends," Journal of Financial Economics, Elsevier, vol. 13(2), pages 253-282, June.
    15. Cooney, John Jr. & Van Ness, Bonnie & Van Ness, Robert, 2003. "Do investors prefer even-eighth prices? Evidence from NYSE limit orders," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 719-748, April.
    16. Aerts, Walter & Campenhout, Geert Van & Caneghem, Tom Van, 2008. "Clustering in dividends: Do managers rely on cognitive reference points?," Journal of Economic Psychology, Elsevier, vol. 29(3), pages 276-284, June.
    17. Brown, Philip & Chua, Angeline & Mitchell, Jason, 2002. "The influence of cultural factors on price clustering: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 307-332, June.
    18. Barry, Christopher B. & Brown, Stephen J., 1985. "Differential Information and Security Market Equilibrium," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(4), pages 407-422, December.
    19. David Michayluk & Karyn Neuhauser & Scott Walker, 2019. "Are all dividends created equal? Australian evidence using dividend‐increase track records," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(4), pages 2621-2643, December.
    20. Long, John Jr., 1978. "The market valuation of cash dividends : A case to consider," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 235-264.
    21. Fengyi Lin & Liming Guan & Wenchang Fang, 2011. "Heaping in Reported Earnings: Evidence from Monthly Financial Reports of Taiwanese Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(2), pages 62-73, March.
    22. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    23. Robert Brooks & Edwyna Harris & Yovina Joymungul, 2013. "Price clustering in Australian water markets," Applied Economics, Taylor & Francis Journals, vol. 45(6), pages 677-685, February.
    24. Andrew Ainsworth & Kingsley YL Fong & David R Gallagher & Graham Partington, 2016. "Institutional trading around the ex-dividend day," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 299-323, May.
    25. Abeyratna Gunasekarage & David M. Power, 2002. "The post–announcement performance of dividend–changing companies: The dividend–signalling hypothesis revisited," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(2), pages 131-151, June.
    26. Shams Pathan & Robert Faff & Carlos Fernández Méndez & Nicholas Masters, 2016. "Financial constraints and dividend policy," Australian Journal of Management, Australian School of Business, vol. 41(3), pages 484-507, August.
    27. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aineas Kostas Mallios, 2023. "Manipulation in reported dividends: Empirical evidence from US banks," Economics Bulletin, AccessEcon, vol. 43(1), pages 441-461.
    2. Castillo, Augusto & Rubio, German & Jakob, Keith, 2020. "Currency magnitude and cognitive biases: Evidence of dividend rounding in Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Castillo, Augusto & Rubio, German & Jakob, Keith, 2020. "Currency magnitude and cognitive biases: Evidence of dividend rounding in Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    2. Maria Elisabete Duante Neves, 2017. "Payout and Firm's Catering," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 104-132.
    3. Narayan, Paresh Kumar & Narayan, Seema & Popp, Stephan & D'Rosario, Michael, 2011. "Share price clustering in Mexico," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 113-119, April.
    4. repec:ers:journl:v:v:y:2017:i:4:p:104-132 is not listed on IDEAS
    5. Roni Michaely & Stefano Rossi & Michael Weber & Michael Weber, 2017. "The Information Content of Dividends: Safer Profits, Not Higher Profits," CESifo Working Paper Series 6751, CESifo.
    6. H.Kent Baker & Gary E. Powell & E.Theodore Veit, 2002. "Revisiting the dividend puzzle," Review of Financial Economics, John Wiley & Sons, vol. 11(4), pages 241-261.
    7. Meng, Lei & Verousis, Thanos & ap Gwilym, Owain, 2013. "A substitution effect between price clustering and size clustering in credit default swaps," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 139-152.
    8. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    9. Breuer, Wolfgang & Rieger, M. Oliver & Soypak, K. Can, 2014. "The behavioral foundations of corporate dividend policy a cross-country analysis," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 247-265.
    10. Vladim'ir Hol'y & Petra Tomanov'a, 2021. "Modeling Price Clustering in High-Frequency Prices," Papers 2102.12112, arXiv.org, revised Mar 2021.
    11. Booth, Laurence & Zhou, Jun, 2017. "Dividend policy: A selective review of results from around the world," Global Finance Journal, Elsevier, vol. 34(C), pages 1-15.
    12. Kent Daniel & Lorenzo Garlappi & Kairong Xiao, 2021. "Monetary Policy and Reaching for Income," Journal of Finance, American Finance Association, vol. 76(3), pages 1145-1193, June.
    13. Stuart Archbold & Elisabete F. Simões Vieira, 2010. "Corporate Dividend Policies in Bank-based and Market-based Systems: Survey Evidence from UK and Portugal," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(1), pages 34-64.
    14. David, Thomas & Ginglinger, Edith, 2016. "When cutting dividends is not bad news: The case of optional stock dividends," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 174-191.
    15. Bai-Sian Chen & Hong-Yi Chen & Hsiao-Yin Chen & Fang-Chi Lin, 2022. "Corporate growth and strategic payout policy," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 641-669, August.
    16. Nicolas Aubert, 2016. "Does the Catering Theory of Dividend Apply to the French Listed Firms?," Bankers, Markets & Investors, ESKA Publishing, issue 145, pages 27-38, November-.
    17. Zhong He & Xiaoyan Chen & Wei Huang & Rulu Pan & Jing Shi & Tom Smith, 2016. "External finance and dividend policy: a twist by financial constraints," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(4), pages 935-959, December.
    18. Owain ap Gwilym & Evamena Alibo, 2003. "Decreased price clustering in FTSE100 futures contracts following a transfer from floor to electronic trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(7), pages 647-659, July.
    19. Dong, Ming & Robinson, Chris & Veld, Chris, 2005. "Why individual investors want dividends," Journal of Corporate Finance, Elsevier, vol. 12(1), pages 121-158, December.
    20. Kartal Demirg ne, 2015. "Determinants of Target Dividend Payout Ratio: A Panel Autoregressive Distributed Lag Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 418-426.
    21. Kamal Anouar & Nicolas Aubert, 2016. "Does the catering theory of dividend apply to the French listed firms?," Working Papers halshs-01401867, HAL.

    More about this item

    Keywords

    Behavioral; directors; dividends; heaping; management; rounding;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:43:y:2018:i:3:p:421-438. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.