Testing the residual theory of dividend policy through a natural experiment: the enactment through legislation of a required minimum dividend PAYOUT

• Grant number: 13/22135-5
• Support Opportunities: Regular Research Grants
• Start date: March 01, 2015
• End date: February 29, 2016
• Field of knowledge: Applied Social Sciences - Administration - Business Administration
• Principal Investigator: Antonio Zoratto Sanvicente
• Grantee: Antonio Zoratto Sanvicente
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil

Abstract

In an imperfect capital market, corporate investment, financing and dividend policies are not independent from one another. The residual theory of dividend policy acknowledges that interdependency, resulting from the existence of transactions costs. The present study uses the change in corporation law in 1976, which introduced a minimum required dividend, in order to test its impact on investment by public companies. The study makes use of heretofore unavailable historic data for the stock market. (AU)