Profits, dividends and industry restructuring: the Swedish paper and pulp industry between 1945 and 1977

ABSTRACT

This paper explores the role of profit distribution in the restructuring of the Swedish paper and pulp (P&P) industry between 1945 and 1977. In addressing this issue, we will draw on the life-cycle theory and market imperfection arguments to examine whether the less profitable firms shared more of their profits as dividends, or remained on the market longer by reinvesting the majority of the profits. Our study shows that an increasing share of the profits was distributed to owners over time, and thus less profit was reinvested in industrial renewal. We find that the observed general upward trend in dividends can be attributed to the decline in profit and firm legacy, as firms in the Swedish P&P industry kept dividends up while reducing reinvestment as their profit margins decreased over time. Our study shows that the market imperfections related to capital taxation and investment funds increased rather than decreased dividends.

KEYWORDS:

• Life-cycle theory
• dividend
• market imperfection
• paper and pulp industry

Acknowledgement

The paper have benefited from comments and criticism from the editor and three anonymous referees.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCiD

Lars Fredrik Andersson http://orcid.org/0000-0002-1413-3707

Notes

1 The sample includes one left-censored observation (Dividend <= 0). When testing for the slight censoring effect using a Tobit model, we cannot identify any difference from a random-effect panel data model.

2 The most preferable measure of internal capital is retained earnings only. Due to lack of data, however, the share of retained earnings of total equity is not possible to indicate.

3 The geographical position is measured from urban areas. For board members living in the countryside, the closest urban area (village or city) is used as proxy. Labour representatives are excluded from the measure as they do not take part in decision-making on dividends. Of the board members, 2% lived abroad.

Additional information

Funding

Financial support from Forte, ‘Kreativ förestörelse och förstörande förstörelse’ and Umeå University, ‘Regional economic and spatial dynamic program’, is gratefully acknowledged.