Dividends and Foreign Performance Signaling

31 Pages Posted: 28 May 2015

See all articles by Robert Joliet

Robert Joliet

IESEG School of Management Lille/Paris; French National Center for Scientific Research (CNRS) - Lille Economie & Management (LEM) UMR 9221

Aline Muller

HEC Management School University of Liège; Maastricht University - Limburg Institute of Financial Economics (LIFE)

Multiple version iconThere are 2 versions of this paper

Date Written: May 27, 2015

Abstract

This study uses Hines’ (1996) dividend process model to test the effect of domestic versus foreign profitability shocks on firms’ dividend payout policy. Investigating an international sample of 283 companies from Continental Europe, Australia, New Zealand, the U.S.A. and Canada, we find that increases in some foreign market earnings stimulate higher cash distributions than similar increases in domestic earnings. The disaggregation of foreign performance across country-specific markets reveals that managers are predominantly using dividends to signal foreign profit movements that have been generated in emerging markets and Asian Pacific developed markets – while they do not feel compelled to send signals related to positive earnings news originating from other mature developed markets (i.e. North America and Western Europe). The findings also confirm the popular view that due to their higher variance and lower persistence, positive foreign profitability shocks coming from emerging markets are more difficult to integrate into stable dividend policies.

Keywords: disclosure, dividend policy, multinational firm, disaggregation, emerging markets

JEL Classification: F23, M41, G14

Suggested Citation

Joliet, Robert and Muller, Aline, Dividends and Foreign Performance Signaling (May 27, 2015). Multinational Finance Journal, Vol. 19, No. 2, p. 77-107, 2015, Available at SSRN: https://ssrn.com/abstract=2611038

Robert Joliet

IESEG School of Management Lille/Paris ( email )

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HOME PAGE: http://www.ieseg.fr

French National Center for Scientific Research (CNRS) - Lille Economie & Management (LEM) UMR 9221 ( email )

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LILLE, 59016
France

HOME PAGE: http://lem.cnrs.fr

Aline Muller (Contact Author)

HEC Management School University of Liège ( email )

B-4000 Liege
Belgium
+3242327435 (Phone)
+3242327376 (Fax)

Maastricht University - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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