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Profit distribution and regulation: the impact of mandatory dividend in corporate internal funding

Revista Contabilidade & Finanças, 2020-12, Vol.31 (84), p.524-541 [Peer Reviewed Journal]

COPYRIGHT 2020 Departamento de Contabilidade - FEA/USP ;Copyright Universidade de São Paulo, FEA, Departmento de Contabilidade e Atuária Sep-Dec 2020 ;This work is licensed under a Creative Commons Attribution 4.0 International License. ;ISSN: 1519-7077 ;ISSN: 1808-057X ;EISSN: 1808-057X ;DOI: 10.1590/1808-057x201910000

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  • Title:
    Profit distribution and regulation: the impact of mandatory dividend in corporate internal funding
  • Author: Vancin, Daniel Francisco ; Kirch, Guilherme
  • Subjects: BUSINESS, FINANCE ; Cash flow ; Cash management ; Corporate governance ; Corporate profits ; Data entry ; Debt management ; Decision making ; Dividend distributions ; Dividends ; financial constraints ; internal funding ; Investment ; Investments ; mandatory dividend ; Profit ; Publicly held corporations ; Stockholders ; Studies ; value of cash
  • Is Part Of: Revista Contabilidade & Finanças, 2020-12, Vol.31 (84), p.524-541
  • Description: The purpose of our research is to verify the impact of mandatory dividends on Brazilian publicly traded companies, focusing on both the value of cash holdings and the impact on corporate investment. Our work aims to reach the research objective making significant improvements over the previous works on the subject. First, we separate firms according to their dividend status. Second, in addition to investment regressions, we use the value of cash approach to test the impact of mandatory dividend on corporate financial decisions. Finally, our manual data collection makes it possible to allocate the dividend distributed to its reference period. Considering our context, where sources of financing are expensive and scarce, evidences obtained by the present research has great relevance. The law aims to protect the minority investor against the expropriation of resources. However, in dealing with all cases equally, legislation ends up harming companies that rely on these resources for their financing, thereby damaging their shareholders. This article brings new evidences, from an innovative approach, on factors affecting the availability of resources and its impact on the value of cash and on corporate investment in Brazil. We analyzed a sample of 1,654 dividend distributions from 2008 to 2015, using investment and firm value regressions. Our results indicate that companies paying just the minimum dividend have higher value attached to an extra unit of cash, corroborating our view that those companies will likely use these resources to fund future profitable investments. We also find that mandatory dividend has a negative impact on investment, but only for companies paying dividends above the minimum, contrary to our expectations. We argue that the marginal value of cash approach is a more effective way to test the impact of regulation on corporate financial decisions and this last evidence may be the result of endogeneity problems in investment regressions.
  • Publisher: São Paulo: Departamento de Contabilidade - FEA/USP
  • Language: English;Spanish;Portuguese
  • Identifier: ISSN: 1519-7077
    ISSN: 1808-057X
    EISSN: 1808-057X
    DOI: 10.1590/1808-057x201910000
  • Source: SciELO
    DOAJ Directory of Open Access Journals
    AUTh Library subscriptions: ProQuest Central
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