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Takeover Risk and Dividend Strategy: A Study of UK Firms[Note 1. We would like to thank Colin Cannon, Alan Carruth, ...]
Author(s) -
Dickerson Andrew P.,
Gibson Heather D.,
Tsakalotos Euclid
Publication year - 1998
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00072
Subject(s) - dividend , business , earnings , shareholder , dividend policy , control (management) , monetary economics , market for corporate control , financial economics , corporate governance , accounting , economics , finance , management
We investigate the relationship between a company’s dividend strategy and its risk of takeover. Our results from a large panel of UK quoted companies suggest that higher dividend payments are associated with a significantly lower conditional probability (hazard) of takeover. Moreover, firms which wish to avoid takeover would be better to distribute the marginal £1 of earnings in dividends rather than investing it in the company. We consider two explanations for these findings. We suggest that the presence of an active market for corporate control could encourage firms to raise dividends to maintain shareholder loyalty.