What Drives the Cash Dividend Policy of the Poorly Performing Firms in Hong Kong?

Review of Pacific Basin Financial Markets and Policies, Vol. 11, Issue 3, pp. 347-361, 2008

Posted: 21 Oct 2009

See all articles by Louis T. W. Cheng

Louis T. W. Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration

T.Y. Leung

Hong Kong Shue Yan College

Date Written: September 2008

Abstract

We use financial data on poorly performing firms in Hong Kong to examine the motives behind paying out cash dividends when they suffer an earnings decline. We test three hypotheses behind the cash dividend policy: The maturity hypothesis, the free cash flow hypothesis, and the self-interest hypothesis of directors (i.e., the cash channeling hypothesis of directors). The findings are largely consistent with the maturity hypothesis and the free cash flow hypothesis but do not support the cash channeling hypothesis, confirming good market transparency and governance of the Hong Kong market.

Keywords: corporate governance, maturity, poor earnings, cash dividends

JEL Classification: D82, G14, M41

Suggested Citation

Cheng, Louis T. W. and Fung, Hung-Gay and Leung, T.Y., What Drives the Cash Dividend Policy of the Poorly Performing Firms in Hong Kong? (September 2008). Review of Pacific Basin Financial Markets and Policies, Vol. 11, Issue 3, pp. 347-361, 2008. Available at SSRN: https://ssrn.com/abstract=1490822

Louis T. W. Cheng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration ( email )

One University Blvd.
487 SSB
St. Louis, MO 63121
United States
314-516-6374 (Phone)

T.Y. Leung

Hong Kong Shue Yan College ( email )

10 Wai Tsui Crescent
Braemar Hill Road
North Point
Hong Kong

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