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
Date Written: September 2008
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: Suggested Citation