Relation Between Debt and Equity and Long-term Influence With Dividend Initiation

• Main Authors: Shih-Jen Chen, 鄭世仁
• Other Authors: none
• Format: Others
• Language: en_US
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/92494901417188714457

碩士 === 國立中央大學 === 財務金融研究所 === 93 === This paper examines the risk structure changes and the relation between debt financing and dividend payment. Our finding presents that the decrease in total equity risk is followed by the decrease in the residual variance, and there is also a decrease in equity beta after dividend initiation. Dividend payout is the main factor to reduce firms’ total equity risk and the most part of the decrease comes form the decrease in the residual variance. This study also identifies the influence of dividend initiation in earning per hare, turnover rate and outside shareholders. The result indicates that the sample firms only experience a significant increase in earning per share in year +1 but a decrease from year +2 to +5. We further identify the relation between debt and dividend with short-term and long-term method. We find that the firms with dividend increasing would likely choose lower debt to equity ratio, so the relation between debt and dividend is so-called substitution effect. Moreover, we implement the long-term method to justify the relation, and the result also shows that a substitution effect between debt and dividend, consistent previous result, but it is a transitory effect.