The dividend puzzle misspecification – Why the role of dividends is not what people think

Figures & data

Table 1. The categorization of dividend policy hypotheses by investor factor and managerial factor

On an increase in DPR	Expected Rate of Return (Investor Factor)	Expected Earnings Growth Rate (Managerial Factor)
Bird in Hand Theory	Decrease (due to cash dividends in hand)	-
Signalling Hypothesis	-	Increase (expectance of stable higher earnings growth)
Irrelevance Theory	-	-
Tax Effect (assuming higher taxes on dividends)	Increase	-
Transaction Cost Theories	-	Decrease (due to less retained earnings for investment leading to dependency on costlier external financing)
Agency Theories	Decrease (due to lesser agency costs)	-

Table 2. The variable definitions as used in analysis of Indian stock market

Variable	Name	Definition
$k_{f,t}$	Dividend Payout Ratio	The amount of dividends actually paid (including taxes on dividends) by a firm during a financial year divided by profit after tax of the firm in that financial year
${\rho }_{f,t,t+T}$	Expected rate of return	Growth in average of all NSE 500 Index closing values in March of a particular year
$g_{f,t,t+T}$	Growth in Earnings	Growth in profit after taxes accrued by a firm in a financial year after adding back value of extraordinary expenses incurred during that year
$\mathrm{\Delta }{k}_{f,t,t+T}$	Change in Dividend Payout Ratio	Change in dividend payout ratio of a firm (final—initial)
${\phi }_{f,t,t+T}$	Dividend Increment Factor	The ratio of value the investor will receive on an amount invested, if the effective rate of interest is equal to the expected rate of return for a firm and the value of his money if it grows by the growth rate of the firm.

Table 3. Descriptive statistics for Nifty 500 data

	$\mathrm{\Delta }{k}_{f,t,t+T}$	$k_{f,t}$	$k_{f,t}{\phi }_{f,t,t+T}$
Mean	0.067	0.267	0.318
Median	0.000	0.175	0.114
Standard Deviation	1.730	0.659	2.263
Skewness	24.438	18.540	15.984
Kurtosis	946.489	494.667	580.761
Number of observations	2503	2503	2503

Table 12. Descriptive statistics for S&P 500 data

	$\mathrm{\Delta }{k}_{f,t,t+T}$	$k_{f,t}$	$k_{f,t}{\phi }_{f,t,t+T}$
Mean	−0.029	0.409	0.175
Median	0.001	0.236	0.264
Standard Deviation	4.826	4.332	12.935
Skewness	−30.979	43.212	−54.426
Kurtosis	1545.268	2280.337	3184.118
Number of observations	3752	3752	3752

Table 13. Regression results for the first equation for US data

Variable	Coefficient	Standard Error	P Value
$c$	0.3529	0.0351	1.82E-23
$k_{f,t}$	−0.9445	0.0324	1.88E-168
$k_{f,t}{\phi }_{f,t,t+T}$	0.0241	0.0114	0.0345
R Squared		0.810

Table 14. Regression results for the second equation for US data

Variable	Coefficient	Standard Error	P Value
$c$	1.0182	0.2526	0.0001
$\mathrm{\Delta }{k}_{f,t,t+T}$	−2.0338	0.7458	0.0064
$k_{f,t}$	0.3353	0.1534	0.0289
R Squared		0.633

Table 15. Standardized coefficients for the first equation for US data

Variable	Standardized Coefficient Value
$c$	0.3736
$k_{f,t}$	−1.0000
$k_{f,t}{\phi }_{f,t,t+T}$	0.0255

Table 16. Standardized coefficients for the second equation for US data

Variable	Standardized Coefficient Value
$c$	3.0366
$\mathrm{\Delta }{k}_{f,t,t+T}$	−6.0656
$k_{f,t}$	1.0000

Table 4. VIF test results for the first equation for Indian data

Variable	Coefficient Variance	Uncentred VIF
$c$	0.00062	1.181
$k_{f,t}$	0.00121	1.116
$k_{f,t}{\phi }_{f,t,t+T}$	0.00010	1.020

Table 5. White test results for the first equation for Indian data

P-Value—F Test

0.000

Table 6. Regression test results for the first equation for Indian data

Variable	Coefficient	Standard Error	P Value
$c$	0.0182	0.0249	3.19E-13
$k_{f,t}$	−1.0239	0.0348	1.52E-163
$k_{f,t}{\phi }_{f,t,t+T}$	0.4988	0.0101	0
R Squared		0.560

Table 7. Standardized coefficients for the first equation for Indian data

Variable	Standardized Coefficient Value
$C$	0.0177
$k_{f,t}$	−1.0000
$k_{f,t}{\phi }_{f,t,t+T}$	0.4871

Table

R Squared

0.560

Table 8. VIF test results for the first equation for Indian data

Variable	Coefficient Variance	Uncentred VIF
$c$	0.00125	1.2059
$\mathrm{\Delta }{k}_{f,t,t+T}$	0.00276	1.3473
$k_{f,t}$	0.00049	1.1583

Table 9. White test results for the second equation for Indian data

P-Value—F Test

0.000

Table 10. Regression test results for the second equation for Indian data

Variable	Coefficient	Standard Error	P Value
$c$	−0.0341	0.0480	0.477
$\mathrm{\Delta }{k}_{f,t,t+T}$	1.0689	0.1711	5.00E-10
$k_{f,t}$	0.9863	0.1273	1.36E-14
R Squared		0.492

Table 11. Standardized coefficients for the first equation for Indian data

Variable	Standardized Coefficient Value
$c$	−0.0345
$\mathrm{\Delta }{k}_{f,t,t+T}$	1.0837
$k_{f,t}$	1.0000

Table

R Squared

0.492

Table

R Squared

0.810

Table

R Squared

0.633