Article2010

Dividends versus Share Repurchases Evidence from Canada: 1985–2003

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract This paper provides out‐of‐sample evidence on the payout policy in Canada during the 1985–2003 period. First, we show that the proportion of nonfinancial firms paying dividends has decreased, while the proportion initiating repurchase programs has increased. We also show that Canadian firms paying dividends and repurchasing shares are extremely concentrated. Second, we focus on the factors that could affect the choice between repurchases and dividends. We find that dividends and repurchases are used by different types of firms. While we do not confirm the financial flexibility hypothesis, our results are consistent with the substitution hypothesis after controlling for selection bias and endogeneity.

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References

1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES 2001Disappearing dividends: changing firm characteristics or lower propensity to pay?2009On the use of instrumental variables in accounting research 2005Payout policy in the 21st century 2002Dividends, Share Repurchases, and the Substitution Hypothesis 2004A Catering Theory of Dividends 2000Financial flexibility and the choice between dividends and stock repurchases 1968Dividend Policy: An Empirical Analysis

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2016Payout differences between family and nonfamily listed firms: a socioemotional wealth perspective 2013Information and Long‐Term Stock Performance Following Open‐Market Share Repurchases

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