Dividend initiators, winners during 2008 financial crisis

Abstract

Purpose – The purpose of this paper is to describe and compare the mean response for selected financial variables in three dividend paying groups before and after the financial crisis of 2008. Dividend initiators are expected to be rewarded by investors over traditional dividend paying firms. Design/methodology/approach – Quarterly CRSP data from 2000 to 2012 are used to define dividend paying groups. Highly unbalanced financial data on dividend paying firms are analyzed in two truncated sample periods defined before and after the financial crisis. Fitted models describing differences in dividend paying groups are based on the linear mixed model representation of penalized splines with random effects to account for repeated measures over time. Findings – Results are presented on the important differences in selected financial variables before and after the financial crisis by dividend paying pattern group (traditional, initiators, residual/catering). Special emphasis is given to the analysis of market/book value ratio. Results demonstrate dividend initiators are rewarded over traditional dividend firms by investors. Firms with an intermittent paying pattern have no advantage. All dividend paying firms grow during the 2008 financial crisis. Traditional dividend payers have larger size than other dividend payers. The size effect explains results for several of the financial variables studied. Research limitations/implications – Future work can include an industry effect on the three dividend paying groups. Practical implications – Investors appear to prefer certainty as to when they receive a dividend over uncertainty, especially in times of economic downturn and economic recovery. Social implications – Enhanced awareness that different payment patterns exist and are rewarded differently over time on both the corporate issuer and investor sides. Originality/value – This study adds to body of knowledge of practical dividend payment patterns around a financial crisis. It also provides added support for dividend initiators.