Cross Listing and Dividend Policy: Evidence from Cross Listings within East Africa

By Waweru, Kennedy Munyua; Pokhariyal, Ganesh P. et al. | Journal of Emerging Trends in Economics and Management Sciences, February 2012 | Go to article overview

Cross Listing and Dividend Policy: Evidence from Cross Listings within East Africa


Waweru, Kennedy Munyua, Pokhariyal, Ganesh P., Mwaura, Muroki F., Journal of Emerging Trends in Economics and Management Sciences


Abstract

The purpose of this study is to examine the impact of cross listing on dividend policy for cross listed firms within East Africa and to test the substitute hypothesis. The study first conducts univariate analysis for the before-after effects of cross listing using paired tests, then includes non cross listed firms in multivariate analysis using pooled Time Series Cross Section, Panel Corrected Standard Errors regressions for a period of 13 years (1998 to 2010). The study's findings provide empirical evidence to indicate that the dividend payouts for cross listed firms were relatively higher than the dividend payouts for then non cross listed firms. The findings lend credence to the substitute hypothesis, the payment of higher dividends by cross listed firms may well result from a voluntary commitment on the part of these firm to protect their investors and maintain credible reputation for fair treatment. These findings are contrary to the prediction investor recognition/visibility hypothesis

Keywords: cross listing, dividend policy, bonding hypothesis, outcome hypothesis, substitute hypothesis

INTRODUCTION

Though substantial literature exist on dividend policy especially those focusing on a single country and at firm levels (Easterbrook, 1984; Jensen, 1986; Gugler, 2003; Goergen 2005), all of which point to a positive relationship between dividend policy and corporate governance, very few studies have been conducted on cross-country level (La Porta et al., 2000; Faccio et al., 2001; Adjaoud et al., 2006; Abdallah and Goergen, 2008; Petrasek 2009). These studies are influenced by the bonding hypothesis1 advanced by Coffee (1999; 2002)2. The bonding hypothesis posits that firms from countries with poor protection of minority shareholders signal their desire to respect the rights of shareholders by listing in jurisdictions with higher scrutiny, tougher regulations, and better enforcement. The bonding hypothesis does not however provide formal link between dividend policy and cross listing. Empirical studies by Reese and Weisbach (2002), Doidge et al., (2004); Doidge (2004), and Dyke and Zingales (2004) support the bonding hypothesis. Licht (2003) has however put forth divergent theoretical views on the bonding hypothesis. He argues that the bonding hypothesis is completely unfounded and contends that instead of bonding, most issuers of foreign securities may actually be avoiding better governance.

Building on theoretical arguments of the bonding hypothesis, La Porta et al., (2000) advances two agency hypotheses of dividends. The first one referred to as the outcome hypothesis postulates that, minority shareholders use their legal powers to force companies to disgorge cash consequently, the hypothesis predicts that dividend payout ratios are higher in countries with good shareholder protection ceteris paribus. Additionally, in countries with good shareholder protection, companies with better investment opportunities should have lower dividend payout ratios. Abdallah and Goergen (2008) find empirical support for the outcome hypothesis. The second referred to as the substitute hypothesis views dividend as a substitute for legal protection. It posits that a reputation for good treatment of shareholders is worth the most in countries with weak legal protection of minority shareholders. The hypothesis predicts that dividends payout ratios should be higher in countries with weak legal protection of shareholders than in those with strong protection. Additionally, in countries with poor shareholder protection, firms with better investment opportunities might pay out more to maintain reputation. Empirical findings by O'Connor (2006) support the substitute hypothesis.

The focus of this study is on the impact of cross listings on dividend policy within East Africa because, from the few studies conducted on cross- listing and dividend policy, cross listings within the African continent receive sparse attention, Abdallah and Goergen (2008) only include firms from the Johannesburg Stock Exchange, a majority of which are cross listed in Europe and the US. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Cross Listing and Dividend Policy: Evidence from Cross Listings within East Africa
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.