Why Firms Do Not Pay Dividends: The Canadian Experience

Forthcoming in Journal of Business Finance and Accounting (JBFA)

Posted: 25 Sep 2012  

H. Kent Baker

American University - Kogod School of Business

Bin Chang

University of Ontario Institute of Technology

Shantanu Dutta

The University of Ontario Institute of Technology (UOIT)

Samir Saadi

Queen's School of Business

Date Written: September 24, 2012

Abstract

We use a survey approach to investigate the factors leading to the decision not to pay cash dividends in Canada. Our results show that Canadian managers perceive growth opportunities, low profitability, and cash constraints as the major underlying reasons for a firm’s decision not to pay dividends. Questionnaire results also show that, for non-dividend-paying firms, taxation is at best a second-order determinant of dividend policy and that stock repurchases are not substitutes for dividends. Finally, our findings are inconclusive regarding managers’ views on the relationship between dividend policy and stock prices and the signaling role of dividend policy.

Keywords: Dividend policy, cash dividends, taxation, stock repurchase

JEL Classification: G35

Suggested Citation

Baker, H. Kent and Chang, Bin and Dutta, Shantanu and Saadi, Samir, Why Firms Do Not Pay Dividends: The Canadian Experience (September 24, 2012). Forthcoming in Journal of Business Finance and Accounting (JBFA). Available at SSRN: https://ssrn.com/abstract=2151676

H. Kent Baker

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1949 (Phone)
202-885-1992 (Fax)

Bin Chang

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario M5J2N3
Canada

Shantanu Dutta

The University of Ontario Institute of Technology (UOIT) ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

Samir Saadi (Contact Author)

Queen's School of Business ( email )

Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Paper statistics

Abstract Views
445