Dividend smoothing of publicly listed firms in the Philippines

• Main Authors: Jao, Ralph Vincent L., Sy, Mark Jensen N., Valerio, Ramon T.
• Format: text
• Language: English
• Published: Animo Repository 2010
• Subjects: Dividends > Philippines; Capitalists and financiers > Philippines; Investments > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/6689
• Institution: De La Salle University

Recent studies indicate that some firms resort to dividend smoothing in order to attract investors and give out information that conceals some financial aspects about the corporation. This raises the question of whether firms that give out dividends would mean good investment opportunities, given that firms use dividend as a mean to send out asymmetric information. This paper investigates the existence of dividend smoothing, which involves the deliberate adjusting of dividends in response to variations in the earning streams. It aims to establish its relation with firm-specific characteristics, which may help convey the possibility of dividend smoothing . This study builds around the Agency Theory of Jensen and Meckling (1976), the Dividend Signaling Theory of Ross (1977) and Bhattacharya (1979), Free Cash Flow theory of Jensen (1986), the Pecking Order Theory of Maijluf and Myers (1984) and the Partial Adjustment model of Lintner (1956). The sample includes 33 publicly listed firms in the Philippine Stock Exchange and is constructed as a panel data set for the years 2004 to 2008. Using economic techniques, this study verifies the relationship of dividend smoothing with firm-specific characteristics. The relevance of this study lies in investor awareness, as investors should know that dividends do not necessarily mean profitability. It is sometimes misleading since dividends are the most visible way of signaling the market about the firm.