D11. Albayrak, Ali Sait ve Mehmet Pekkaya (2008). "Examining the Relationship between Price of Equity and Dividend Policy of Firms Operate in Service and Industry Sectors of ISE," Selçuk Üniversitesi Sosyal Bilimler Meslek Y

D11. Albayrak, Ali Sait ve Mehmet Pekkaya (2008). "Examining the Relationship between Price of Equity and Dividend Policy of Firms Operate in Service and Industry Sectors of ISE," Selçuk Üniversitesi Sosyal Bilimler Meslek Yüksekokulu

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  137 Examining the Relationship between Price of Equity and Dividend Policy of Firms Operate in Service and Industry Sectors of ISE Ali Sait ALBAYRAK  *  Mehmet PEKKAYA **   Abstract This study utilizes financial pooled data and investigates the relationship between the  price of equity with payout and retained earnings of firms that operate in Istanbul Stock Exchange (ISE), Turkey. Three regression models are constructed to test the hypotheses. The results suggest that the determinants of price of equity presented by the finance theory appear to be relevant for the ISE service and industry sectors. Payout and retained earnings both seem to have an effect on the level of equity price of the firms. Further-more, the results indicate that time and sector affects the levels of equity price. Keywords: Dividend Policy, Equity Price, Regression Analysis, ISE. İ MKB Sanayi ve Hizmet Sektörlerinde Faaliyet Gösteren Firmalar ı n Hisse Senedi Fiyatlar ı   İ le Kara Pay ı  Da ğ ı t ı m Politikas ı  Aras ı ndaki İ li ş kinin İ ncelenmesi Özet Bu çal ı ş mada havuz veriler kullan ı larak İ stanbul Menkul K  ı ymetler Borsas ı  ( İ MKB) sanayi ve hizmet sektörlerinde faaliyet gösteren firmalar  ı n hisse senedi fiyatlar  ı  ile nakit temettü ve otofinansman aras ı ndaki ili ş ki ara ş t ı r  ı lmaktad ı r. Ara ş t ı rma hipotezlerini s ı na-mak için üç regresyon modeli geli ş tirilmi ş tir. İ MKB sanayi ve hizmet sektörlerinde faali-yet gösteren firmalar üzerinden elde edilen bulgular, finans yaz ı n ı ndaki hisse senedi fiyatlar  ı  ile nakit temettü ve otofinansman aras ı nda beklenen pozitif yönlü ili ş ki güçlü bir ş ekilde desteklemektedir. Firmalar  ı n nakit temettü ve otofinansman düzeylerinin hisse senetlerinin fiyatlar  ı  üzerinde önemli bir etkiye sahip oldu ğ u görülmektedir. Ayr  ı ca ara ş -t ı rma sonuçlar  ı , sektör ve zaman faktörlerinin hisse senedi fiyat düzeyleri üzerinde etkili oldu ğ unu göstermektedir. Anahtar Kelimeler: Temettü Politikas ı , Hisse Senedi Fiyat ı , Regresyon Analizi, İ MKB. *  Yrd. Doç. Dr. Zonguldak Karaelmas Üniversitesi, İİ BF, İş letme Bölümü, Say ı sal Yön-temler Anabilim Dal ı . **  Ö ğ r. Gör. Zonguldak Karaelmas Üniversitesi, İİ BF, İş letme Bölümü, Say ı sal Yöntemler Anabilim Dal ı .  138 1. Introduction Maximizing the firm value is the main purpose of both a firm man-agement and firm’s dividend policy decisions. The shareholders of the firm expect profit from their investment via valuation and mostly payout of the firm’s equity. Then, the firm’s payout policy is important for val-uation of the firms. However, besides distribution of dividend payout, expecting of valuation in equity price are contrary situations. In other words, amount of dividend payment should be optimized by satisfaction of firm investors, while firm should have enough cash that wouldn’t cause financial problems or not to conduct it to a position of paying high interest rates. Accordingly, determination of the dividend payout is really complex and hard. There are three main counter sights on dividend policy. Miller and Modigliani defend irrelevance between a firm equity price and its payout value in the atmosphere of assumptions which states effective market, rational behavior and definiteness (Miller and Modigliani, 1961). It is logically accepted but it may not be valid under real world conditions (Brigham, 1986:535). However, bird in hand theory  which is been in favor of Gordon-Lintner and theory of information content or signaling   support high quantity of dividend payout policy (Kargun, 1999:13). This theory is accepted by majority of investors, managers and academicians. High amount of dividend payout is preferred by especially small inves-tors. A small investor tends to realize cash earnings and/or to get signals about the equity from dividend payouts. On the contrary, Walter formula  which calculates equity price via expected payouts, t ax differential theory  which states less dividend payout produces less tax payments and resi-dual dividend theory  which states earning must be used primarily by firm necessities (Pekkaya, 2006). Walter formula, tax differential theory and residual dividend theory insists on high quantity of payout policy produc-es negative effect on firm value. Big investors usually prefer less divi-dend payout because of especially tax differentials and reinforcement of  139 firm cash position (Truong and Heaney, 2007). Small investors (Dong et al., 2005) and second largest shareholders (Gugler and Yurtoglu, 2003)  prefer to receive dividend payouts. Taking into account of varying inves-tors’ demand is important; otherwise managers are penalized via a rela-tively lower stock price (Li and Lie, 2006). Small and big investors, who expect opposite wish in amount of dividend payout but alike in firm val-ue, must be satisfied. Besides, cash position of a firm must be strong enough that not need to have cash with high interest rates (Pekkaya, 2006). Holder, Langrehr and Hexter find that firm which less indebted and traced low payout policy is more liquid and has less risk in bankrupt-cy (Holder et al., 1998). There are many factors that effect determination of dividend policy of the firms. According to a country legal regulation  which declares mini-mum dividend ratio, inflation  which forces firm to high cash ratios in firm cashbox and tax ratios  are major factors that affect dividend policy.  Liquidity  must be in satisfactory level   and  new investment plans  must be conducted without worthy cash problem, so regularity of profits  in the future period can be forecasted that results in regular dividend payout. There are also other factors such as, sector of the firm, indebtedness of firm and so on (Ceylan, 1999:16-18; Berk, 1995:368-370; Okka, 2005:413-415; Pekkaya, 2006). Dividend can be distributed by cash, by equity and/or by repurchase. Firm’s payout instruments have influences on the relation between returns and spreads (Gottesman, 2006). Thus, for maximizing equity price, dividend payout determination by managers is really delicate and hard to decide. In decision process all of these factors should be considered. Black (1976) states that when one’s concentrates on dividend payout, it is pictured as a kind of puzzle. Ho (2003) states that a firm’s dividend policy is affected by profitabil-ity, size, debt, risk, tangibility and growth. So, Ho investigates regression that affects firm’s dividend payout by using these factors plus liquidity, stock beta and market to book value in Australia and Japan (Ho, 2003).  140 Dividend policies are also affected by firm size, profitability, cash bal-ances, dividend history, growth opportunities and earned equity (Denis, 2007; DeAngola et al., 2006). Aivazion et al. (2003a) found that emerg-ing market stocks are affected by the same factors as US firms but differ-ent in sensitivity. Five different questionnaire studies are made by Baker at al. (1999; 2000; 2001; 2002; 2006) on CEOs and top managers about determination of factors that affect value of NYSE, NASDAQ or Oslo Stock Exchange market firms. These studies support Lintner’s finding and signaling theory, remaining stable earnings, stable dividend policy and they are changeable according to firms. In addition to these findings, regression results show that current dividends are more sensitive than  past dividends in emerging markets (Aivazian et al., 2003b). Payout policy is changeable even in the same country, for instance  pricing mechanism urges managers to pay dividends in Hong Kong but not in Mainland, China (Zhang, 2008). Recently, stability in dividend  payout is preferred and some researchers suggest a kind of payout by regular share repurchase instead of cash payouts which are little impact on equity price (Skinner, 2008; Brav et al., 2005; Gryglewicz, 2004; Bernstein Research, 1998:52). Kanas (2005) states that there is nonlinear relationship between the stock price and dividend payout according to cointegration and Granger causality test in the stocks of UK, US, Japan and German market. After declaration of extraordinary and special cash dividends, investors may get abnormal return during declaration period (Gryglewicz, 2004) but no significant return post-declaration long-term period (Chou et al, 2007). However, Samad et al. (2007) find that there is no significant relationship  between dividend payout stability and stock abnormal return even for different sectors. The ISE is an emerging European stock exchange market only dates  back to 1986 and after 1995 some regulatory arrangements on dividend  policy are placed; namely, current mandatory cash dividend payout at  141 least 20% of earning is granted (Adao ğ lu, 2000; SPK, 2008). However, instability in earning results in instability in dividend payout in Turkey. Accordingly, it is difficult to analyze dividend data taken from ISE. In recent times, most of the studies are concentrated on determination of dividend policy factors. To determine these factors, investigators usually conduct questionnaire especially for administrators or CEOs of firms. This study investigates the relationship between the equity price and dividend payout, retained earnings, one-year lagged dividend payout, one-year lagged retained earnings, industry type, time affect using appro- priate regression technique. Some studies mentioned above are about how current dividend payout is effected by the past dividend payout. Results of these studies show that, along with legal regulations, inflation, tax ratios, liquidity position, profitability, debt, risk, firm size, growth poten-tial etc. factors, dividend history and sector of the firm also affect divi-dend decisions. Similarly in this study it is taken into account dividend variations which are stem from sectors. For determining of stock value of firm, current payouts, current retained earnings, one year lagged payouts and one year lagged retained earnings are considered. Since investors  prefer stock mostly for its future expectations and dividend history may affect stock prices, then a stock value can be identified by these variables. In 1964, Friend and Puckett use cross-section data to test the effect of dividend payout and retained earnings on price of share value. Prior to their study, most studies had related stock prices to current dividends and retained earnings, and reported that higher dividend payout was asso-ciated with higher price/earnings ratios (Copeland and Weston, 1992). This study consists of five sections. The first section is introduction and literature review. The second section is about empirical hypotheses. The third section describes the data and methodology. The results and discussion of empirical study is given in the fourth section. The last sec-tion is the conclusion of this study.
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