|
Article Excerpt
Abstract
This paper presents the findings of a comparative study of dividend policies in Australia and Japan. It examines panel data from the constituent stocks of the ASX 200 Index of the Australian stock market and the Nikkei 225 Index of the Japanese stock market. The evidence that Australia, with an imputation tax system which favors dividends over capital gains, has a significantly higher dividend payout than Japan lends support to the influence of environment on dividend policy. Dividend policies in Australia and Japan are affected by different financial factors. Fixed effects regression models indicate that dividend policies are affected positively by size in Australia and liquidity in Japan, and negatively by risk in Japan only. An industry effect is found to be significant in both countries. (JEL G30, 050)
Introduction
This paper presents the findings of a comparative study of dividend policies in Australia and Japan. It examines 10-year panel data with 2235 firm-year observations from the constituent stocks of the ASX 200 Index of the Australian stock market and the Nikkei 225 Index of the Japanese stock market from 1992 to 2001, using fixed effects regression models. This paper is expected to help financial managers and stock market participants gain an understanding of the dividend policies in Australia and Japan.
According to the 1990 statistics for "The Ten Best Countries in the World," Australia and Japan are the most developed in the Asia Pacific region. In the 1990 United Nations Human Development Index, which was adjusted for life expectancy and literacy, Japan is ranked first with 0.993, the United States seventh with 0.976, and Australia ninth with 0.973 [Riahi-Belkaoui, 2002, p. 25].
However, Australia and Japan are different in their cultural, financial, legal, and political environments. Based on the Gernon and Meek [2001, p. 9] classification of environmental variables in nations and types of corporate taxation in OECD member countries [Ishi, 2001, p. 177], Table 1 highlights the differences between the Australian and Japanese environments. Their accounting systems are two ends of a spectrum [Nobes, 1983] in which Australia follows the judgmental and professional approach of the British-American model and Japan follows the prescriptive and law-based approach of the Continental model.
These environmental factors cause differences in the level of disclosure requirements of stock markets in response to various levels of political, financial, and economic risk, which have implications for dividend policies. The International Country Risk Guide (ICRG) scores of Australia, Japan, and United States are 76.0, 45.0, 37.0; 80.0, 50.0, 39.0; and 78.0, 49.0, 39.5 in their respective categories of political, financial, and economic risk [Riahi-Belkaoui, 2002, P. 148]. The maximum, or least risky, score is 100 for the political category and 50 each for the financial and economic risk. In all of the categories, the Japanese stock market is considered to be less risky than the Australian stock market.
Moreover, Japan has a credit-based system [Gernon and Meek, 2001]. It is characterized by a few very large banks which satisfy most of the capital needs of business. Ownership tends to be concentrated. There are close ties between firms and banks, and their relationships are long-term. The information needs of the resource providers are satisfied in a relatively straightforward way through personal contacts and direct visits. Direct access is an efficient and practical way to ensure that a firm's financial health is monitored. As banks are the primary sources of capital, financial accounting is oriented toward creditor protection.
In Japan [Gernon and Meek, 2001, p. 4]:
"one sees, for example, such practices as conservatively valuing assets and overvaluing liabilities in order to provide a cushion for the bank in the event of default. These practices also reduce the dividend demands of shareholders."
In accordance with the agency and signaling theories [Watts, 1973; Jensen and Meckling, 1976; Easterbrook, 1984; Jensen, 1986] of dividend policy, these environmental factors suggest a lower dividend payout in Japan than in Australia.
A firm's dividend decision is concerned with the deployment of the profit that is generated from its operations. The profit is either retained by the firm for reinvestment or distributed to its shareholders as return on their equity capital in the form of dividends. The extensive research on dividend policy in the last fifty years has been unable to reach a consensus on a general dividend theory that can either explain the process of dividend decision making, or predict an optimal dividend...
|
