Denis O. Boudreaux

An investigation into the financial characteristics of dividend initiating firms

Dividend announcements are said to have an informational content concerning the value of the firm. Most studies on dividend announcements have involved models to predict change or to analyze that informational content. The purpose of this study is to establish the financial characteristics of firms that initiate or significantly increase dividends. One hundred firms were selected for study. Fifty of the firms had recently either initiated or significantly increased dividends; the other fifty were selected at random. Significant differences were found in the financial characteristics of the two groups. The results were generally consistent with previous studies and finance theory. There were however, two genuine surprises. The dividend initiating firms possessed lower levels of liquidity and activity than firms selected at random. This suggests that dividends may not be paid to dispose of excess cash, but to provide shareholders with some tangible reward in periods of low liquidity and little activity.

Financial determinants of market value: The case of investor favorites

This study identifies the risk-return characteristics of “Americas Most Valuable” companies as listed byBusiness Week. The study determines those characteristics that separate the sample from firms selected at random from the same industries. Significant differences were found. The sample of investor favorites were found to have a higher degree of systematic risk. The results indicate that investors at the margin may be less sensitive to operating risk than financial risk.