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Abstracts of Articles in
The Financial Review
Vol. 36, No. 4 - November 2001
"Forced Versus Voluntary Dividend Reduction: An Agency Cost Explanation"
Ranjan D'Mello, Tarun Mukherjee, and Oranee Tawatnuntachai"Aggregate Dividend Behavior and Permanent Earnings Hypothesis"
Ming-Shiun Pan"Selectivity and Market Timing Performance of Fidelity Sector Mutual Funds"
Wilfred L. Dellva, Andrea L. DeMaskey, and Colleen A. Smith
"Forced Versus Voluntary Dividend Reduction: An Agency Cost Explanation"
Ranjan D'Mello, Tarun Mukherjee, and Oranee Tawatnuntachai
Volume 37, No. 4, pp.We examine whether the agency cost arising from shareholder-bondholder conflict is an important determinant of the timing of dividend reduction decisions. Firms forced to reduce dividends owing to bond convenant violations experience lower earnings, more frequent losses, and greater earnings declines around the dividend reduction year than do firms that voluntarily reduce dividends. Relative to voluntary-reduction firms, forced-reduction firms have higher debt-to-equity ratios and managerial holdings. These findings coupled with the increased dividend payout ratios and lower announcement period returns suggest that financially distressed firms that anticipate poor performance have greater incentives to delay reducing dividends to avoid a wealth transfer to bondholders.
"Aggregate Dividend Behavior and Permanent Earnings Hypothesis"
Ming-Shiun Pan
Volume 37, No. 4, pp.The study examines the aggregate dividend behavior of U.S. corporations based on the permanent earnings hypothesis. Using annual data of aggregate earnings and dividends from 1871-1993, I find that although managers change dividends proportional to permanent earnings changes, they make revisions with a larger percentage change in dividends than in permanent earnings. The results from the post-war data show that firms follow a partial adjustment policy with a long-term dividend payout target in mind and make revisions with a delay. The quarterly data analysis yields results similar to those of the post-war annual data.
"Selectivity and Market Timing Performance of Fidelity Sector Mutual Funds"
Wilfred L. Dellva, Andrea L. DeMaskey, and Colleen A. Smith
Volume 37, No. 4, pp.In this paper, we test the selectivity and timing performance of the Fidelity sector mutual funds during the 1989-1998 time period. We use the S&P 500, the Dow Jones Industry Group Total Return Indexes, and the Dow Jones Subgroup Total Return Indexes as benchmarks. When we use the Dow Jones Industry benchmarks, our results indicate that many sector fund managers have positive selectivity but negative timing ability. We also find that the results are sensitive to our choices of benchmark and timing model.