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The relationship between pension funds and dividend payout : evidence from UK firms

Hassan, Nor Laili (2014) The relationship between pension funds and dividend payout : evidence from UK firms. PhD thesis, Prifysgol Bangor University.

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Abstract

This study examines the relationship between dividend and pension funds holdings using a sample of non-financial firms listed on the London Stock Exchange for the period of March 1997 to December 2008. March 1997 data are included since this was the only period for which ownership data was available prior to an important change in taxation. The study questions whether pension funds are attracted to firms with high dividend payouts and examines whether pension funds appear to be: (1) recipients of managerial decision making, or (2) in a position to influence decision making. Based on UK evidence, the study finds that whilst higher dividend payout does not appear to influence pension funds investment, a policy of stable increases in dividend for five consecutive years is significantly related to the level as well as changes in pension fund ownership. The result implies that whilst pension funds may not require dividend payouts for their investment purpose, they do expect stable increases in dividend if a firm does pay a dividend and are likely to increase their ownership when companies begin to follow a policy of stable increases in dividend payout. The beneficial taxation of dividends for pension funds was reduced when the tax credits available to pension funds prior to July 1997 were removed. This study finds, albeit using a limited time frame prior to this change, pension funds tended to invest in firms with a higher dividend payout rather than a low dividend payout. Further analysis suggests that pension funds may have some influence on firms’ dividend policies when payout is proxied by dividend to book value. However, the relationship is not proven when the study repeats the analysis using dividend per share and dividend to earnings. Therefore, the study suggests that pension funds are merely recipients of managerial decision making and react positively to a policy of stable increases in dividend payout but they do not appear to influence firms’ dividend policy. Overall, the study provides insights into potential explanations for the role of dividend policy in attracting pension fund investors, and for the relationship between pension funds and dividend payouts in UK.

Item Type: Thesis (PhD)
Subjects: Degree Thesis
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Degree Thesis
Date Deposited: 20 Aug 2015 15:36
Last Modified: 30 Mar 2016 13:05
URI: http://e.bangor.ac.uk/id/eprint/5000
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