The Dividend and Share Repurchase Policies of Canadian Firms
46 Pages Posted: 28 Apr 2000
Date Written: 19 2001 1,
We empirically investigate dividend and share repurchase policies of Canadian firms. We have sent aquestionnaire to the 500 largest non-financial Canadian companies listed on the Toronto StockExchange, of which 191 usable responses were returned. These data are used to measure firmcharacteristics. We use several logit regression analyses to test the structure and determinants of thedividend and share repurchase choice. Our results are consistent with a structure in which thecompany first decides whether it wants to pay out cash to its shareholders or not. In the second stagethe firm decides on the form of the payout: dividends, share repurchases or both. Payout is determinedby free cash flow. The choice for dividends and repurchases depends on behavioral and taxpreferences. Furthermore, the payout is less likely to be dividends if the company has executive stockoption plans. Finally, we find evidence for the Brennan and Thakor (1990) model. According to thismodel the existence of asymmetric information amongst outsiders is associated with a preference fordividend payments over share repurchases.
Keywords: dividends, share repurchases, strategic financial decisions, payout decisions, nested logit models
JEL Classification: M, G3, G35
Suggested Citation: Suggested Citation