Vol. 36, No. 4 - November 2001
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"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.