The third column of Table 7 presents the expanded model that includes thesix financial variables and the country dummies. Similar to Booth et al. (2001),there is incremental explanatory power in the additional financial variables. Theindependent variables provide the same general results obtained by examining theindividual country samples, and all of the dummy variables continue to be signifi-cant. All of the signs on the country dummy variables are positive and significant,indicating that after taking into account firm-specific factors (such as profitabil-ity) firms from these emerging markets all pay higher dividends than their U.S.counterparts.Finally, the last column in Table 7 uses dummy variables based on ourtaxonomy of financial systems to categorize the eight emerging market countries incomparison with the United States. Although the adjustedR2value declines relativeto when individual country dummies were included, indicating that informationis being lost with this coarser grouping, the sign on the significant independentvariables remains much the same. Finally, the group dummies are significant inshowing some homogeneity in our groupings, particularly because the“least like theU.S.”dummy variable has the largest coefficient, indicating the biggest differencewith the United States. However, they still have larger dividends than U.S. firms,even after including independent variables to control for differences in firm-levelcharacteristics.VI. ConclusionsOur empirical results reveal that for both U.S. firms and emerging mar-ket firms, profitability affects dividend payments; high ROE tends to mean highdividend payments. This provides strong support for the residual cash flow theoryof dividends. Similarly, higher debt ratios correspond to lower dividend payments,suggesting that financial constraints affect dividend policy. In addition, the market-to-book ratio has a positive effect on dividend payments, contrary to expectations.There is little evidence that business risk or size affects dividend policy in a signif-icant or consistent way. Finally, for emerging market firms, we find that dividendsare negatively related to the tangibility of firm assets. We attribute this to the cor-responding drop in short-term assets that are available as collateral for short-termbank debt, which we expect would reduce short-term borrowing capacity in bank-dominated markets. In general, we find that the same factors are important for
Emerging Market Firms387emerging market firms as for U.S. firms. However, emerging market firms aremore sensitive to some of the variables, indicating the greater financial constraintsunder which they operate.We conduct a pooled cross-country analysis including country dummyvariables to examine the differences that do exist. Overall, the simple countrydummieshaveasmuchexplanatorypowerasthesixindependentfinancialvariables,which demonstrates the importance of these factors. In the fully expanded version ofour model, country dummies are significant even after adjusting for differences infirm-level characteristics such as profitability and debt. This suggests that firms in
As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.
Temple University Fox School of Business ‘17, Course Hero Intern
I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.
University of Pennsylvania ‘17, Course Hero Intern
The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.
Tulane University ‘16, Course Hero Intern
Stuck? We have tutors online 24/7 who can help you get unstuck.
Ask Expert Tutors
You can ask
You can ask
You can ask
(will expire )