How Do Dividend Payments Affect Stock Prices - Free Essay Example

Sample details Pages: 7 Words: 1989 Downloads: 2 Date added: 2017/06/26 Category Statistics Essay Did you like this example? Abstract The main goal of this paper is to investigate the impact of dividend payments on common stock prices using a panel of listed firms in Tunis Stock Exchange for a period from 2000 to 2008. Our empirical investigations reveal that Tunisian investors reward firms paying cash dividends. This result is very interesting because it begs the question on the intention of Tunisian managers to pay dividend when investors put a stock price premium on payers as the catering theory suggests. 1. Introduction In efficient and perfect market, Modigliani and Miller (1961) have demonstrated that there is no difference between the value of the firm paying dividends and that of nonpayer. Baker and Wurgler (2004a) argue that the investor demand for dividend-paying stocks depends on either psychological or institutional factors. They argue that managers tend to pay dividends when investors put higher prices on payers, and they omit dividends when payers are at a discount. Baker and Wurgler (2004a) suggest that this catering behavior explains the difference documented between the average market-to-book ratios of payers and non-payers and that managers rationally initiate dividends to exploit an apparent market mispricing. They find that when the rate of dividend initiation increases, the future stock returns of payers are lower than those of non-payers. This result supports the hypothesis that firms initiate dividends when the payers are overvalued. In this paper, we attempt to investigate whethe r cash dividend payments affect positively share prices. Don’t waste time! Our writers will create an original "How Do Dividend Payments Affect Stock Prices" essay for you Create order The remainder of the paper is organized as follows. Section 2 reviews the literature on dividend payout policy. Section 3 provides a description of the data used in the empirical analysis and presents regression results for the determinants of stock prices. Section 4 concludes. 2. Literature Review Baker and Wurgler (2004b) show that the disappearance of dividends can be explained by lower market valuations of payers during such periods. They find that the propensity to pay increases when a proxy for the stock market dividend premium is positive and decreases when it is negative. These empirical results suggest that the distribution of dividends responds to patterns of market timing. Companies pay dividends in order to raise the stock prices of their shares above their fundamental values. However, we wonder why the demand for shares paying dividends changes over time? Baker et al. (2007) argue that this time-varying can be attributed to changes in income tax rates of shareholders. Baker and Wurgler (2004a) note that the increase in the value of a company paying dividends reflects the risk assessment by investors. Indeed, dividend-paying firms are considered less risky than non-payers ones since this dividend premium disappears in periods of expansion and reappears in recession periods. Thus, investors who prefer cash dividend payments during gloomy period as an indicator of the firms safety and therefore are more willing to pay dearly to buy dividend-paying stocks. Ferris et al. (2006) conclude that the decline of the number of dividend-paying firms in UK can be explained by a shift in catering incentives. Li and Lie (2006) suggest that changes in corporate payout ratios of US firms depend on the market dividend premium. Ferris et al. (2008) find that investors place high value on dividend-paying firms. By contrast, Eije and Megginson (2008) investigate dividend policies in fifteen European countries over the period 1989-2003 and conclude that their findings do not support the catering hypothesis. Denis and Osobov (2008) find that reductions in the percent of dividend-paying stocks occur in countries where the dividend premium is largely positive. Tsuji (2010) finds that Japanese corporate managers do not cater to investors in either their dividend initiation decisions or their continuation decisions. 3. DATA and Methodology To form our main Tunisian sample, we start with all listed firms appearing at any point between 2000 and 2008. We restrict the sample to exclude financial firms[1]. The final sample covers 24 publicly traded Tunisian firms. Data were collected from Tunis Stock Exchange and completed from firms web sites. 3.1 Definition and measurement of variables The evolution of stock prices can be explained by variables specific to the firm such as cash dividend and profitability, by macroeconomic variables such as interest rates and inflation, and a variable which reflects the stock market performance. 3.1.1 Dividends According to the model of Gordon and Shapiro (1956), the current stock price equals the present value of its future dividends. Gordon and Shapiro assume that the dividend is a constant fraction of the profits carried out by the company. The expected receipt of dividend income is an incentive for investing in a given stock, particularly if the yield on the investment exceeds the return offered on other alternative investments like savings accounts. Investors may pay a premium for shares in issue. Tsoukalas and Sil (1999) find a strong correlation between the stock prices and dividends paid by U.K firms. 3.1.2 Profitability An improvement in profitability leads to an increase in stock price because investors become more optimistic about future performance of the firm. Demand increases for the shares that have a high prospect for growth (blue chip shares). Prices of such shares rise much faster than those of companies whose growth prospects are bleak. Vuolteenaho (2002) finds that firm-level stock returns are mainly driven by cash-flow news. By contrast, Kothari et al. (2006) show that stock prices are unrelated to past earnings and depend negatively on concurrent earnings. In this paper, Profitability is defined as earnings before interests and tax reported to total assets. 3.1.3 Inflation The impact of inflation on the stock price is not obvious. If households expect higher prices, they can increase their consumption and therefore reduce their savings. This behavior will lower stock prices. By contrast, if households choose to keep the value of their heritage, they will be more likely to invest in shares in order to hedge against a rise in the general level of prices of goods and services. Indeed, inflation erodes the purchasing power of money and other financial assets that have fixed values. Therefore, if households have a hedging purpose, inflation will have positive effects on share prices. Alagidede and Panagiotidid (2010) provide evidence of a positive long-run relationship between stock prices and inflation in five African countries (Tunisia, Egypt, South Africa, Kenya, and Nigeria) and they conclude that common stocks in these countries represent a hedge against rising consumer price. Geyser and Lowies (2001) examine the relationship between share prices and inflation within a sample of firms listed in Namibian and Johannesburg Stock Exchanges. Their findings reveal a strong positive correlation between inflation and stock prices of Namibian firms. In South Africa, companies belonging to the mining sector cannot be served as an inflation hedge since stock prices of these firms are negatively correlated with the evolution of the Consumer Price Index, whereas stock prices of firms in other sectors (financial services, information technology and food and beverage) are slightly positively correlated with inflation. Bodie (1976) finds that in the U.S during the period from 1953 to 1971 common stocks failed to serve as hedges against either anticipated or unanticipated inflation. The inflation rate is defined as the percentage rate of change in consumer price index. 3.1.4 Interest rate The impact of changes in interest rates on stock prices is mixed. If rates rise, bonds become less expensive which encourages shareholders to arbitrate for bonds by selling shares that they hold and therefore stock prices fall. By contrast, a significant decrease of interest rate makes shares more profitable and persuades investors to buy back equity and pushing up prices. Cifter and Ozun (2008) find that stock prices in Turkey are negatively affected by the interest rate changes. represents the money market annual average rate for Tunisia. 3.1.5 Stock market performance A bull market is characterized by higher valorizations and a bear market is characterized by lower stock prices. In this paper, we used annual return rate of the index TUNINDEX to measure the performance of Tunisian stock market. 3.2 Descriptive statistics ÂÂ ¶ Table 1 reports descriptive statistics for the dependant and explanatory variables. We note the higher level of the money market annual average rate that can be explained by the important rising consumer price Tunisia. The mean of the natural logarithm of dividend is negative suggesting that Tunisian firms pay annually on average less than 1 TND as cash dividend. Insert table-1 here Table 2 reports the correlations matrix for explanatory variables. The coefficients of correlation of explanatory variables are generally low. Using a test of Farrar-Glauber (1967), we can accept the hypothesis of the absence of multicollinearity among our independent variables. Insert table-2 here 3.3 Estimation methods The study was conducted on panel data. Using panel data can enhance the quality and quantity of data. It allows us to identify some effects that cannot be detected using time-series analysis. Panel data regression provides three estimators; pooled OLS, fixed effects, and random effects models. A pooled estimator takes as the same across all cross-section units. The fixed effects model assumes as a group specific term. The random effects approach takes as a group specific disturbance. Testing the significance of the group effects To choose between these three approaches we compute a test of homogeneity. The hypothesis of homogeneity of constants across all cross-section units can be formulated as follows: This test of Fisher is computed as follows: Where: : Residues square sum of the individual effects model : Residues square sum of the model Pooled. : Number of firms : Number of explanatory variables (constant not included) If calculated F is lower than tabulated F (p-value 0.05), H0 is rejected and we have to choose between the fixed and the random effects model. Hausmans test for fixed versus random effects If the effect is assumed to be individual, the Hausman specification test is carried out in order to decide whether the fixed or the random effects model should be used. The Hausman test compares the fixed and random effects estimates of coefficients. The tested hypothesis concerns the correlation of the individual effects and the explanatory variables. Under the null hypothesis, the individual effects are random and we then have to choose the estimator of GLS. Under the alternative hypothesis, the individual effects are correlated to the explanatory variables and we then have to choose the model to fixed effects. The test of Hausman compares the matrix of variance-covariance of two estimators: The statistic H is asymptotically distributed as with K degree of freedom, where K is the number of explanatory variables. If calculated H is lower than tabulated (p-value 0.05), H0 is rejected and individual effects are assumed fixed. 3.4 Findings Table 3 reports regression results. We provide Pooled OLS, fixed effects and random effects results. The Hausmans test confirms that the estimator fixed effects is the proper one. Insert table-3 here Cash dividends have a significantly positive impact on stock prices of Tunisian firms. This result indicates that Tunisian investors reward cash dividend-paying firms by adding a positive premium to their shares prices. The profitability has a positive impact on stock prices. Highly profitable firms have higher stock prices. If the firm releases new positive results, investors will be more optimistic about its prospects and expected future cash flows and therefore they will be willing to pay dearly to buy its securities. The variable MARKET that measures the performance of Tunis stock exchange presents the expected sign. This result indicates that stock prices follow the overall trend of the market. Inflation affects negatively and significantly stock prices suggesting that common stocks of Tunisian firms cannot provide a hedge against inflation. The plausible explication for this result is that an increase of the consumer price index reduces the marginal propensity to save. Our result confirms findings in Geske and Roll (1983). 4. Conclusion This paper investigates the impact of cash dividend payments on stock prices of listed non-financial Tunisian firms. Our empirical results reveal that Tunisian investors reward cash dividend-paying stocks. This finding begs the question on the existence of a catering behavior as suggested by Baker and Wurgler (2004a). Future academic studies with larger datasets should investigate whether Tunisian firms behave according to the prediction of the catering theory by comparing the value of payers and non-payers firms.

Indus Civilization Timeline and Description

The Indus civilization (also known as the Harappan Civilization, the Indus-Sarasvati or Hakra Civilization and sometimes the Indus Valley Civilization) is one of the oldest societies we know of, including over 2600 known archaeological sites located along the Indus and Sarasvati rivers in Pakistan and India, an area of some 1.6 million square kilometers. The largest known Harappan site is Ganweriwala, located on the bank of the Sarasvati river. Timeline of the Indus Civilization Important sites are listed after each phase. Chalcolithic cultures 4300-3200 BCEarly Harappan 3500-2700 BC (Mohenjo-Daro, Mehrgarh, Jodhpura, Padri)Early Harappan/Mature Harappan Transition 2800-2700 BC (Kumal, Nausharo, Kot Diji, Nari)Mature Harappan 2700-1900 BC (Harappa, Mohenjo-Daro, Shortgua, Lothal, Nari)Late Harappan 1900-1500 BC (Lothal, Bet Dwarka) The earliest settlements of the Harappans were in Baluchistan, Pakistan, beginning about 3500 BC. These sites are an independent outgrowth of Chalcolithic cultures in place in south Asia between 3800-3500 BC. Early Harappan sites built mud brick houses, and carried on long-distance trade.The Mature Harappan sites are located along the Indus and Sarasvati rivers and their tributaries. They lived in planned communities of houses built of mud brick, burnt brick, and chiseled stone. Citadels were built at sites such as Harappa, Mohenjo-Daro, Dholavira and Ropar, with carved stone gateways and fortification walls. Around the citadels were an extensive range of water reservoirs. Trade with Mesopotamia, Egypt and the Persian gulf is in evidence between 2700-1900 BC. Indus Lifestyles Mature Harappan society had three classes, including a religious elite, a trading class class and the poor workers. Art of the Harappan includes bronze figures of men, women, animals, birds and toys cast with the lost was method. Terracotta figurines are rarer, but are known from some sites, as is shell, bone, semiprecious and clay jewelry.Seals carved from steatite squares contain the earliest forms of writing. Almost 6000 inscriptions have been found to date, although they have yet to be deciphered. Scholars are divided about whether the language is likely a form of Proto-Dravidian, Proto-Brahmi or Sanskrit. Early burials were primarily extended with grave goods; later burials were varied. Subsistence and Industry The earliest pottery made in the Harappan region was built beginning about 6000 BC, and included storage jars, perforated cylindrical towers and footed dishes. The copper/bronze industry flourished at sites such as Harappa and Lothal, and copper casting and hammering were used. Shell and bead making industry was very important, particularly at sites such as Chanhu-daro where mass production of beads and seals is in evidence.The Harappan people grew wheat, barley, rice, ragi, jowar, and cotton, and raised cattle, buffalo, sheep, goats and chickens. Camels, elephants, horses, and asses were used as transport. Late Harappan The Harappan civilization ended between about 2000 and 1900 BC, resulting from a combination of environmental factors such as flooding and climatic changes, tectonic activity, and the decline of trade with western societies.   Indus Civilization Research Archaeologists associated with the Indus Valley Civilizations include R.D. Banerji, John Marshall, N. Dikshit, Daya Ram Sahni, Madho Sarup Vats, Mortimer Wheeler. More recent work has been conducted by B.B. Lal, S.R. Rao, M.K. Dhavalikar, G.L. Possehl, J. F. Jarrige, Jonathon Mark Kenoyer, and Deo Prakash Sharma, among many others at the National Museum in New Delhi. Important Harappan Sites Ganweriwala, Rakhigarhi, Dhalewan, Mohenjo-Daro, Dholavira, Harappa, Nausharo, Kot Diji, and Mehrgarh, Padri. Sources An excellent source for detailed information of the Indus civilization and with lots of photographs is Harappa.com. For information on the Indus Script and Sanskrit, see Ancient Writing of India and Asia. Archaeological sites (both on About.com and elsewhere are compiled in Archaeological Sites of the Indus Civilization. A brief Bibliography of the Indus Civilization has also been compiled.

Essay on Stock Market Crash as the Cause of the Great...

What Was the Exact Cause Of The Great Depression? The United States Great Depression leads many people to believe different stories about what actually caused it. The Stock Market Crash in October of 1929 is often referred to as the beginning of the Great Depression, but did it actually cause it? The answer is that it was the spark that lit the flame of the Great Depression. The Great depression was a financial decline that started in 1929 and lasted through most of the 1930s. Its pinpoint was in North America and Europe, but plagued countries around the world (especially developed countries). Unemployment and homelessness sky rocketed and construction practically stopped in many countries. Industrial production declined by 50%,†¦show more content†¦This increased the spending but created debt for the shoppers. Consumers who were deeply in debt risked failure to pay, even when a price deflation occurred and they kept working their jobs. To cope with this dilemma, they drastically cut spending to make payments. Thus, the demand for luxury items and new products dropped. New cars were not selling as fast as they had been. New electronics such as radios were crowded together in display windows. Warehouses began to be jammed and this led to layoffs. Manufacturers read reports of overloaded warehouse and did not care. They believed that is was only temporary and would soon clear up. (Nardo 30-31) Early in September the stock market reached an unsurpassed high. Immediately following this high, the market began to gradually slide. On the afternoon of October 24, 1929 the great American stock market took a bottomless plunge. Investors finally realized the stock boom had been an over inflated bubble. Margin investors were being ruined because stock holders tried to pay back debts. By November of 1929, the Dow sank from 400 to 145. In three days, the New York Stock Exchange removed over 5 billion dollars worth of share values. 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Liberal Arts Essay Example For Students

Liberal Arts Essay Law schools report that by the yardsticks Of law review and grades, their top students come from math, classics, and literature, with political science, economics, pre- awe and legal studies ranking lower. In todays fast evolving world, leaders across the spectrum of vocations and professions need a broad imaginative and critical capacity, not a prematurely narrow point of view. In terms of the actual world, a solid liberal arts and sciences education will generally prove the most practical preparation for many demanding, high-level careers, or for the several careers that an increasing number of adults will eventually pursue. No particular concentration or area of study is inherently a better ticket to security, leadership, or personal satisfaction than another, Students should he encouraged to follow heir passions and interests, not what they guess (or what others tell them) will lead to a supposedly more marketable set of skills. Of course, higher education has a utilitarian function. In that regard, as Robert Bella states, it possesses its own legitimacy, Yet, it is crucial to combine and integrate that function with other aims and ends, with what Bella calls education for the development of character, citizenship, and culture, A healthy system of higher education offers many rewards: scientific discoveries, eventual and even unforeseen applications, Houghton political leadership, intelligent public discourse, cultural vitality, and an educated workforce. Higher learning serves several goals in coordination, goals that are mutually reinforcing. The aims are at once personal and social, private and public, economic, ethical, and intellectual. Han. radar College exists to serve all these goals and Offers a broad array Of concentrations and courses for the purpose of educating the whole individual. Why? Because that kind of education, and not one aimed at certain occupational targets, is, in the long run, the best preparation for advanced achievement. The very broad, capacious arm of education that we call the liberal arts is rooted in a specific curriculum in classical and medieval times. But it would be wrong to assume that because it has such ancient roots, this kind of education is outdated, stale, fusty, or irrelevant, In fact, quite the contrary. A liberal-arts education, which Louis Maenad defined in The Marketplace of Ideas as a background mentality, a way of thinking, a kind of intellectual DNA that informs work in every specialized area of inquiry, lends itself particularly well to contemporary high-tech methods tot imparting knowledge, We all wrestle with the challenges of educating students ho are used to multitasking, doing their homework while listening to music and testing on their phones. For such students, the Web-based facilities of exciting liberal-arts courses are particularly salient. What would Aristotle or Erasmus or Robert Maynard Hutchins not have given for a technique that allows one to tour the worlds greatest museums, looking closely at the details of countless masterpieces; explore the ruins of ancient castles and pyramids and forums; join archaeological digs at your desk, turning objects around to see all sides of them; visualize problems in geometry or astronomy or mathematics in overall dimensions and work out their solutions. An excellent example of the power Of multimedia coupled With the liberal arts is Imaginary Journeys, a general-education course sometimes taught at Harvard university by Stephen Greenbelts. The course is described as being about global mobility, encounter, and exchange at the time that Harvard College was founded in 1636. Using the interactive resources of computer technology, we follow imaginary voyages of three ships that leave England in 1633. Sites include Loons Globe Theatre, Benign, Barbados, Brazil, Mexico. With this kind of course in mind, it seems hat the liberal arts could almost have been designed for sophisticated online learning, so tar from being stale or fusty are these ways of knowing. This kind of education has become more and more appealing to students and teachers at universities around the world. Donald Marketer, the warden of Oxfords Rhodes House, recently gave a series of lectures in Canada entitled The Need for Breadth. He referred to a surge of interest in li beral education in many other countries. He cites a major address in London by Yales Richard Levin in which Levin noted that Asian leaders are increasingly attracted to the American model f undergraduate curriculum, specifically because of the two years of breadth and depth in different disciplines provided before a student chooses an area of concentration or embarks on professional training. Levin described liberal- arts honors programs at Peking University, South Koreans Honeys University, and the National University of Singapore; he also referred to liberal-arts curricula at Feudal University, Nanjing university, and the University of Hong Kong. Animal Testing (2182 words) EssayThe most valuable and attractive people we know are those Who have rich and fascinating intellectual furniture in those spaces rather than a void been their ears. Virginia Wolf used a different spatial image to make a similar point in her book Three Guineas, when she talked about the importance of cultivating taste and the knowledge of the arts and literature and music. She argues that people who are so caught up in their professions or business that they never have time to listen to music or look at pictures lose the sense of sight, the sense of sound, the sense of proportion. And she concludes: What then remains off human being who has lost sight, and sound, and a sense of proportion? Only a cripple in a cave. So my fourth argument for a liberal-arts education is that it allows you to furnish the back room of your mind, preparing you tort both society and solitude, My final argument is that the liberal arts admit you to a community of scholars, bo th professional and amateur, spanning the ages. Here would quote one of my predecessors at Wellesley, Alice Freeman (later Alice V-Riemann Palmer). When she presided over Wellesley in the last part of the 19th century, t was quite unusual for girls to BOO to college (as indeed it still is today in some parts of the world). In a speech she gave to answer the repeated question she got from girls and their families, Why Go to College? She said: We go to college to know, assured that knowledge is sweet and powerful, that a good education emancipates the mind and makes us citizens Of the world. The sweet and powerful knowledge imparted by a liberal-arts education is specifically designed to fulfill this promise. But how can college presidents today best go about making the case for the liberal arts? First and most obvious, they should use the bully lip Of the college presidency deliberately and effectively?at convocations, commencements, groundbreakings for new buildings, in speeches to the local Rotary Club or the state 4. H club convention, and addresses to alumni clubs. This is a truly precious opportunity that few other leaders have, to address the community in situations where there is likely to be respectful attention to their message, at least for a while! They should use the opportunity with zest! The second way is by using their fund-raising skills and obligations to raise money for exciting programs like Greenbacks Imaginary Journeys. They can make this ease effectively to foundations and generous alumni who remember their own liberal-arts education fondly, and thus enhance the resources available for this purpose. Presidents can demonstrate their support tot the liberal arts in how they honor faculty members. With the teaching awards and other distinctions their colleges offer, they should single out for praise and support those who have been most effective in advancing the liberal-arts mission. And then they can ensure that these awards and recognitions are appropriately highlighted in college publications and in messages to parents and prospective students. And reaps the most effective way presidents can use their leadership to offer support is to speak from a liberal-arts perspective in their own discourse, both formal and informal, by citing examples of fine literature, drawing on instances from history, referring to the arts, and describing learning in the sciences in liberal terms. Rhetoric was one of the original rates liberals, and it can still be one Of the most transformation.