We use these institutional groupings along with the

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We use these institutional groupings along with the country identifiers to test the importance of dividend policy.
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376 The Journal of Financial Research III. Sample Characteristics The World Bank (International Finance Corporation, or IFC) database is described in Glen et al. (1994) and Booth et al. (2001). The firms in the database are the largest firms listed on the local stock exchange. The data set consists largely of abbreviated balance sheet and income statements, with limited cash-flow and mar- ket data, and it has the largest available coverage of companies for these countries. However, the coverage is not uniform across countries, or across time, and is limited in terms of nonfinancial statement data, such as industry groupings. For compar- ison purposes, we include a sample of ninety-nine of the largest U.S. companies contained in the Research Insight (Compustat) database. Table 3 provides summary measures of dividend policy as well as basic data to assess the financial health of these firms. It includes three operating measures, three debt measures, and two summary measures. The first operating measure is the tangibility of the firm s assets (Tangibility), defined as total assets minus current assets divided by total assets. This ratio is designed to measure the proportion of long-term ( hard ) assets in the firm s asset structure. The other two operating measures are the firm s business risk (Busrisk), measured by the standard deviation of its return on investment, and the scale of the firm s operations (Size), measured by the natural logarithm of sales. The three debt measures are the debt ratio (Debt), defined as total liabilities divided by total assets; the times interest earned ratio (Coverage); and the current ratio (Current). The two summary measures are the firm s ROE and the firm s market-to-book ratio (M/B), defined as the average common stock price divided by book value per share. The summary statistics reported in Table 3 suggest that the U.S. sample consists of high-quality, profitable firms. They also indicate that the financial health of the emerging market firms is poorer than that of the U.S. firms. In particular, except for firms from Zimbabwe and Jordan, emerging market firms are more highly indebted than U.S. firms, and judging from the current ratio statistics, much of this debt is short term. Fazzari, Hubbard, and Petersen (1988) argue that financially constrained firms are less likely to maintain high dividends. In general, it seems that the emerg- ing market firms are more financially constrained than the U.S. firms and, all else constant, less likely to pay dividends. This observation is consistent with the dis- cussion in section II, which suggests that these firms were operating in relatively high-growth economies with relatively undeveloped capital markets. When firms grow faster than their sustainable growth rate, their financial health will deteriorate unless they raise new equity, as seen in Table 3.
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