Dividend payout and company characteristics

Table 9 shows the results of using GMM-in-systems to obtain added parameter estimates of LNMV, SG, and both of them. Panel A shows that LNMV has a positive relationship with the dividend payout for SCG firms. The coefficient of LNMV increased from 0.02 (Column 2) pre-2000 to a significant value of 0.04 (Column 3) over 2000~2014. By contrast, SG has a negative relationship with regular dividends. The coefficient of SG decreased from a significant value of -0.17 (Column 5) to -0.20 (Column 6). Generally, for SCG group, the firms that are larger and lower revenue growth paid higher dividends.

This result supports the dividend outcome model (H3-II). The target payout ratio increased from 12% to 54% (Column 8, 9), and the speed of adjustment

Corporate Management Review Vol. 38 No. 2, 2018 51 Table 9 Classical Lintnr model and total payout model by introducing firm characteristics under different corporate governance regimes Table 9 Classical Lintner model and total payout model by introducing firm characteristics under different corporate governance regimes (1)(2)(3)(4)(5)(6)(7)(8)(9) 1985-20141985-19992000-20141985-20141985-19992000-20141985-20141985-19992000-2014 Panel A: SCG CDi,t-10.290.520.210.310.520.250.280.520.20 (18.27)***(11.12)***(11.69)***(19.60)***(11.10)***(13.99)***(17.16)***(11.05)***(10.57)*** CDi,t-1+SRi,t-1+CRi,t-1 EPSi,t0.390.050.420.410.080.450.400.060.43 (47.39)***(2.85)***(46.26)***(47.14)***(4.33)***(45.00)***(46.16)***(3.05)***(44.97)*** LNMVi,t0.020.020.040.020.020.04 (5.57)***(2.81)***(7.51)***(5.76)***(2.80)***(7.73)*** SGi,t-0.16 -0.17 -0.20 -0.17 -0.17 -0.23 (-2.43)**(-1.12)(-2.65)***(-2.71)***(-1.17)(-3.16)*** Target payout ratio0.550.110.540.590.160.600.550.120.54 Speed of adj.0.710.480.790.690.480.750.720.480.80 Panel B: WCG CDi,t-10.300.120.320.420.120.490.300.120.32 (33.38)***(8.01)***(27.19)***(51.18)***(7.78)***(48.43)***(33.36)***(7.89)***(27.17)*** CDi,t-1+SRi,t-1+CRi,t-1 EPSi,t0.200.250.190.220.250.210.200.250.19 (54.64)***(32.23)***(44.08)***(58.67)***(33.11)***(46.08)***(54.65)***(32.37)***(44.10)*** LNMVi,t0.06-0.01 0.070.06-0.01 0.07 (24.01)***(-1.23)(23.20)***(24.01)***(-1.31)(23.21)*** SGi,t-0.00 -0.02 -0.00 -0.00 -0.02 -0.00 (-1.16)(-2.94)***(-0.89)(-1.25)(-2.98)***(-1.17) Target payout ratio0.280.280.270.380.280.410.280.280.28 Speed of adj.0.700.880.680.580.880.510.700.880.68

Regular dividend

This table depicts the results of GMM-in-systems regression with cash dividends per share (CD) and total payout per share as dependent variables under different corporate governance regimes. Total payout per share equals to the sum of cash dividends per share (CD), stock repurchases per share (SR), and cash refund per share (CR). Moreover, this study introduces firm characteristics, firm size (LNMV, logarithm of market value) and growth opportunity (SG, sales of growth rate), as control variables in this model. The criterion of corporate governance we use in this study is explained at Table 7. This investigation adopts deviation adjustment method at SG variable as outliers beyond three-sigma limits from mean, we replace each of them with the value of mean adds three sigma. Each cell shows the estimated coefficient and Z-value (in parentheses) as obtained from Stata 13. The superscript *, **, and *** denotes significance at the 10%, 5%, and 1% level. Speed of adjustment is calculated as one minus the coefficient for CDi,t-1(or CDi,t-1+SRi,t-1+CRi,t-1) in the respective period. Speed of adjustment is calculated as one minus the coefficient for CDi,t-1 (or CDi,t-1+SRi,t-1+CRi,t-1) in the respective period. Target payout ratio equals the coefficient for EPSi,t divided by Speed of adjustment in the respective period.

52How the introduction of stock repurchases affects dividend payouts under a full imputation system? Table 9 Classical Lintnr model and total payout model by introducing firm characteristics under different corporate governance regimes (continued) (Continue)(10)(11)(12)(13)(14)(15)(16)(17)(18) 1985-20141985-19992000-20141985-20141985-19992000-20141985-20141985-19992000-2014 Panel A: SCG CDi,t-1 CDi,t-1+SRi,t-1+CRi,t-10.240.520.140.270.520.230.230.520.14 (13.69)***(11.12)***(6.79)***(16.01)***(11.10)***(11.12)***(13.28)***(11.05)***(6.57)*** EPSi,t0.420.050.450.440.080.490.420.060.46 (34.17)***(2.85)***(31.84)***(34.69)***(4.33)***(31.64)***(33.37)***(3.05)***(30.86)*** LNMVi,t0.050.020.090.050.020.09 (6.40)***(2.81)***(9.26)***(6.41)***(2.80)***(9.24)*** SGi,t-0.14 -0.17 -0.14 -0.13 -0.17 -0.11 (-1.46)(-1.12)(-1.18)(-1.42)(-1.17)(-0.93) Target payout ratio0.550.110.530.610.160.630.550.120.53 Speed of adj.0.760.480.860.730.480.770.770.480.86 Panel B: WCG CDi,t-1 CDi,t-1+SRi,t-1+CRi,t-10.250.120.240.370.120.400.250.120.24 (26.01)***(8.01)***(19.71)***(41.95)***(7.78)***(37.89)***(26.01)***(7.89)***(19.69)*** EPSi,t0.210.250.210.240.250.240.210.250.21 (47.83)***(32.23)***(39.18)***(51.39)***(33.11)***(41.64)***(47.81)***(32.37)***(39.18)*** LNMVi,t0.06-0.01 0.080.06-0.01 0.08 (23.06)***(-1.23)(23.39)***(23.06)***(-1.31)(23.39)*** SGi,t-0.00 -0.02 -0.00 -0.00 -0.02 -0.00 (-0.45)(-2.94)***(-0.50)(-0.50)(-2.98)***(-0.77) Target payout ratio0.280.280.270.380.280.400.280.280.27 Speed of adj.0.750.880.760.630.880.600.750.880.76

Total payout

coefficient for the dividend payout decreased from 0.88 to 0.68.

Panel B shows that LNMV has no consistent relationship with the dividend payout for WCG firms. The coefficient of LNMV increased from -0.01 to a significant value of 0.07. The coefficient of SG increased from a significant value of -0.02 to -0.00. This implies that low revenue growth firms paid higher dividends over1985~1999, and large firms paid higher dividends after 2000.

Generally, WCG firms that have lower revenue growth paid higher dividends.

This result does not support the dividend substitute model (H3-III). The target payout ratio did not change (from 28% to 28%), and the speed of adjustment coefficient for the dividend payout increased from 0.48 to 0.80.

Table 9 also shows that, for SCG firms and WCG firms, LNMV has a positive relationship with the total payout. In summary, we find that SCG firms increase their target dividend payout (and total payout) ratio and the speed of adjustment after 2000, whereas WCG firms keep their target dividend payout (and total payout) ratio and decrease the speed of adjustment after 2000.

6. Conclusion

This study uses dynamic panel data regression to investigate the evolution of TWSE-listed firms’ dividend payout around the introduction of stock repurchases. We find that tax reform in 1998 and the introduction of repurchases in 2000 significantly affected firms’ payout policies. Corporate payouts, both dividend payouts and total payouts, have increased and become stickier since 2000. The introduction of repurchases does affect the parameters of Lintner’s total payout model. Under Taiwan’s full imputation system and policy of tax-free capital gains, firms do not substitute stock repurchases for dividends; therefore, the hypothesis that dividends and repurchases are perfect substitutes is not supported.

Our finding that dividends are more rigid than total payouts during the repurchase period 2000~2014 is consistent with the flexibility/payout hypothesis that dividends are primarily paid out from permanent earnings. The target dividend payout ratio of firms increased year by year, and the speed of adjustment coefficient decreased after 2000. The speed of adjustment coefficient is lower in Lintner’s dividend model than in Lintner’s total payout model for

both the SCG and WCG groups after 2000. These results are consistent with the flexibility/speed of adjustment hypothesis; regardless of which group the firms belong to, the dividend payout is more rigid than the total payout in Lintner’s model.

We find that the SCG group has a higher percentage of dividend payers and larger dividend payout ratio than the WCG group over the sample period. SCG firms increased target dividend payout ratio and the speed of adjustment coefficient after 2000, and conversely, WCG firms maintained target dividend payout ratio and decreased speed of adjustment coefficient after 2000. For the SCG group, firms with higher revenue growth paid lower dividends; this is consistent with the dividend outcome model of La Porta et al. (2000). However, in the WCG group, firms that have higher revenue growth had lower dividend payouts. Thus, the dividend substitute model is not supported.

We also find that SCG firms with higher revenue growth have a lower target payout ratio than WCG firms over the non-repurchase period 1985~1999. By contrast, SCG firms with lower revenue growth have a higher target payout ratio than WCG firms over the repurchase period 2000~2014. In summary, the firm-level corporate governance and dividend outcome models are supported.

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