i
Student : Sheng-wen Lai Advisor : Dr. Jane-Raung Lin A Thesis Submitted to Graduate Institute of Finance National Chiao Tung University in partial Fulfillment of the Requirements for the Degree of Master of Science in Finance June 2007 Hsinchu, Taiwan, Republic of China ii
: 2007 6 ix
Research in the characteristics of companies and trend of paypout policy in Taiwan Student: Sheng-Wen Lai Advisor : Dr. Jane-Raung Lin Graduate Institute of Finance National Chiao Tung University June 2007 ABSTRACT The proportion of firms in Taiwan paying dividends falls from 49.3% in 1987 to 12.1% in 1997. After 1998, the trend reverses and the proportion of firms paying dividends amounts to 66.6% in 2006. This article will discuss the changing characteristics of firms,for example, after 1994 there are many small size, low profitability and common growth opportunities going public and these companies are not paying dividends. We must investigate that whether these companies surging after 1994 contribute to the decline of proportion of firms paying dividends. If so, why the proportion of firms paying dividends goes up after 1998? Do companies bear resemblance to the new companies discussed above become mature and have the characteristics of big size, high profitability and common growth opportunities that typically belongs to dividend payers? Finally, we compare all the public companies to the public companies which belong to high-tech industry. Keywords: dividend policy, dividend trend, payout policy x
xi
xii
xiii
xiv
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
t t1 31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
24 66
67
68
69
70
1. Alon Brav, John R. Graham, Campbell R. Harvey, Roni Michaely Payout policy in the 21st century(2005) Journal of Financial Economics, Vol.77. page 483 527 2. Brandon Julio, David L. Ikenberry Reappearing Dividends(2004) Journal of Applied Corporate Finance Vol.16. page 89-100 3. Eugene F. Fama, James D. MacBeth Risk, Return, and Equilibrium: Empirical Tests(1973) The Journal of Political Economy, Vol.81. page 607-636. 4. Eugene F. Fama, Kenneth R. French Disappearing dividends: changing firm characteristics or lower propensity to pay?(2001) Journal of Financial Economics,Vol.60. page 3-43 5. Fischer Black,John C. Cox Valuing Corporate Securities: Some Effects of Bond Indenture Provisions The Journal of Finance, Vol. 31.page 351-367. 6. Frank H. Easterbrook Two Agency-Cost Explanations of Dividends(1984) The American Economic Review, Vol.74.page 650-659. 7. G Grullon, R Michaely, B Swaminathan Are Dividend Changes a Sign of 71
Firm Maturity? (2002) Journal of Business, 2002, Vol. 75.page 387-424 8. Gustavo Grullon,Roni Michaely Dividends, Share Repurchases, and the Substitution Hypothesis(2002) The Journal of Finance, Vol. 57. page 1649-1684. 9. Harry DeAngeloa,Linda DeAngeloa, Douglas J. Skinner Are dividends disappearing? Dividend concentration and the consolidation of earnings(2004) Journal of Financial Economics, Vol.72. page 425 456 10. John Lintner Distribution of Incomes of Corporations Among Dividens, Retained Earnings, and Taxes The American Economic Review, Vol. 46.page 97-113. Michael C. Jensen Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers The American Economic Review, Vol. 76. page 323-329. 12. Michael C. Jensen,William H. Meckling Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure(1976) Journal of Financial Economics, Vol.3. page 305-360. 13. Merton H. Miller; Franco Modigliani Dividend Policy, Growth, and the Valuation of Shares(1961) The Journal of Business, Vol.34. page 411-433. 14. MS Rozeff Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios(1982) Journal of Financial Research, Vol.5 page 249-259 72
15. Murali Jagannathan, Cliford P. Stephens, Michael S. Weisbach Financial flexibility and the choice between dividends and stock repurchases(2000) Journal of Financial Economics, Vol.57. page 355-384 16. Yaniv Grinstein and Roni Michaely Institutional Holdings and Payout Policy(2005) Journal of Finance,Vol.60. page 1389-1426 73
4.. 74