Kyoto University,
Graduate School of Economics
Research Project Center Discussion Paper Series

Shareholder Structure and Dividend Rate in Japanese Firms:
Analysis Using Panel Data

FUKUDA Jun

Discussion Paper No. E-11-003

Research Project Center
Graduate School of Economics
Kyoto University
Yoshida-Hommachi, Sakyo-ku
Kyoto City, 606-8501, Japan

June, 2011

Shareholder Structure and Dividend Rate in Japanese Firms
Analysis Using Panel Data
FUKUDA Jun
Graduate School of Economics, Kyoto University,
Email: j-fukuda@eco06.mbox.media.kyoto-u.ac.jp

Abstract

In Japan, the percentage of shareholders has increased while dividend rate has
decrease. In previous years, the dividend rate is said to be lower in Japan than in USA
or Europe. Dividend rates in Japanese firms could have increased as far as foreign
shareholders have increased since most of them are thought to be institutional
investors with market orientated commitment.
In this paper I use data of manufacturing firms listed by the stock market since 1985
to 2009 splinted in two periods since character of corporate governance is thought tohave changed since the second 1985.
According to the analysis conclusions are summarized as follows: Foreign
shareholders have consistently increased dividend rates since 1985. Moreover, there isno significant relationship between the percentage of financial institutions anddividend rates in the period 1985-1996. However, a reverse trend emerged from thesecond half of 1990s reflecting that the percentage of trust banks has increased andthe commitment of financial institutions has change toward market approach.
Additionally, nonfinancial firms had decreased dividend rate only by the late 1990s.
This implies that nonfinancial firms had taken a role as stable shareholders changing
its interest since then.

JEL Classification: G30, G35,
Key words: [dividend rate] [shareholder structure] [corporate governance] [panel data]

I.

Introduction

Shareholders have concerns about dividend amount paid by firms.
Dividends are revenue of shareholders. In addition, dividends send markets
information of firm and take large role of creation of stock value.
Jensen[1989] said that shareholders have large concerns dividends toabsorb extra funds so as to inhibit organization slack[Cyert and March1963].
In Japan, traditionally, it is said that concerns of dividends for listed
firms is weak. This reason is pointed out cross-shareholding or existence ofstableshareholders. So, increaseof dividends

israrely realized

ifinvestment funds call firms increase dividend since most of stocks issued by
Japanese listed firm are possessed friendly financial institutions andnonfinancial

firm.

In

addition,

friendlyfinancial

institutions

andnonfinancial firms demand to sustain relationship transaction and increase
stock value in long term rather than to increase dividends or stock value inshort term. Only if statement of firms becomes seriously deterioration,intervention from outsider is carried out.
Amable[2003] categorized four groups of developed countries at respect tofinancial system. Identical market based financial system cluster contain
US, Canada, Netherlands, Britain and Australia. Characters of thesecountries are importance of institutional investors especially pension funds,
importance of stock market such as high ratio of market capitalization toGDP, developed venture capital system, frequent of M&A activities anddistributed possession of stocks. In addition, these countries have low
profitability bank sector.
On the other hand, identical bank based financial system contain
Germany, Japan, Austria, France, Italy, Portugal and Spain. Characters ofthese countries are high ratio of credit facility to GDP, high share of1

insurance firms to institution investors, not frequent of M&A activities,
developing accounting standards and venture capital system, concentrationof possession of stock and some extent of possession by governments.
However, since latter of 1990s, it is said that financial institution, inother words, commercial bank and regional bank have released stocks ofother firms and the percentage of stable shareholders have decreased. In
addition, at the same time, the percentage of foreign shareholders and trustbanks has increased. Moreover, activist funds such as Murakami Fundwhich actively suggest proposal governance of firm become to stand out.
Jackson and Miyajima[2007] categorized Japanese firms into threegroups.

First

group

relationship-orientedistraditional

financial

Japanese

structure

firm.

and

In

this

type,

relationship-orientedorganization are composed. Second group is called Type 1 Hybrid. In thistype,market-oriented

financial

structureandrelationship-orientedorganization are composed. These firms are higher profitability. Thirdgroup is called Type 2 Hybrid. In this type, relationship-oriented financial
structureandmarket-orientedorganization

arecomposed 1 .

Theirperformance is higher though it is large dispersion.
Then, shareholder structure may be combined with dividend policy, too.
Especially, dividend may increase such as identical market based financial
countries if the percentage of institutional shareholders such as foreign
shareholders increases.
This is why detail analysis for dividend policy of Japanese firm is needed.
Especially, at the element of corporate governance, foreign shareholders arethought to take important role in deciding amount of dividends. It isthought that most of foreign shareholders are institutional investors fromabroad. Suppose institutional shareholders have stronger interest in
dividend than stable shareholders, dividend rate is large if the percentageof foreign shareholders is large. In addition, financial institutions also
strengthen interests in dividends since the percentage of trust bank is large

2since late of 1990s. The theme of this paper is analysis the relationshipbetween structure of shareholder and dividends rate.
On the other hand, in recent years, economic gap in Japan is serious
problem. Some research pointed that one of the reasons is increase of
distribution of shareholders containing increase of dividends (Shibata[2009]; Morioka [2010]) 2 . It is thought that suppression of wage in recent
years has relationship with increase of dividends 3 .
Next, I summarize conclusion in this paper. Foreign shareholders which
are supposed to be institutive shareholders from abroad have consistently
increased dividend rate since 1985. On the other hand, from 1985 to 1996,
no significant relationship between the percentage of financial institutions
and dividend rate exists. However, significant relationship is found sincethen. It is thought that this reflects that the percentage of commercial bankand region bank decreases and the percentage of trust bank increases. Afterall, the probability that the character of financial institutions has changed
intension for market is high.
Structure of this paper is following. In section Ⅱ , dividend theories forimperfect market and related empirical analysis are introduced. Next, insection Ⅲ , trend of dividend and shareholder structure in Japanese firms
are introduced. In section Ⅳ , I explain way to analyze and carry out
consideration of result of analysis. In this paper, I use balanced panel datafrom March in 1985 to March in2009. In section Ⅴ , I summarize results.

II. Dividend theories and related empirical analysis

According to the theory of Modigliani and Miller , stock value is equal topresent value of profit of this firm in the future and dividend policy isneutral to firm value (Modigliani and Miller [1958]; Miller and Modigliani[1961]). However, this theme is approved only if tax and transaction cost do
not exist, information is symmetry and contract is perfect. These conditions

3

are hard to realize. On the other hand, these conditions are rarely achievedin reality. In the following, according to Ishikawa[2007], Hanaeda and
Serita[2008], I introduce five dividend theories which are corresponding
imperfect market.
At first, I introduce dividend customer segment hypothesis that focuses
tax institution and transaction cost. In this hypothesis, it is supposed thatinvestors buy and sell stocks depending on environment such as tax
institution and transaction cost and on each of their interests of dividendlevel. For example, rational investors who hope to maximize their wealthchoose capital gain, that is, homemade dividend rather than dividend if sumof tax for capital gain and fee to sell stock is less than tax for income gain.
Moreover, wealthy investors who do not need cash income currently may
neither sell stock nor seek dividend. These investors may buy stocks offirms whose dividend is low or zero. In this situation, the relationshipbetween dividend policy and stock value does not exist if enough investors
who support dividend policy exist whatever firms adopt dividend policy.
This is similar to MM theory.
Second, Brav et al.[2005] divided the effect of information about dividend
into two forms of information. The one case is for dividend to convey
confidence about future expected by managers. The other case is for
dividend and buyback to be used as signal intentionally by managers. The
Signaling hypothesis in financial theory (Miller and Rock [1985]; Vermaelen[1981]) supposes latter effect. They are called information effect hypothesis
together.
In signaling hypothesis, it is assumed that managers use dividend as
signal to tell private information about future cash flow in firms tomarket(Bhattacharya [1979]: Miller and Rock [1985]: John and Willliams[1985]). Dividend is involved in heavy “binding power” 4 . This means that
dividend increase is carried out only if managers have strong confidence
about future profit while dividend cut is avoided as possible. So, dividend4increase is interpreted as expression of good confidence by managers andstock value increases while dividend cut is interpreted as expression ofcrisis and stock value increases.
Hanaeda and Serita[2008] investigated former effect 5 . They state thequestion whether or not dividend increase and buyback convey internal
information that profit grows in the future to investors is supported bymany firms. On the other hand, they inquired whether or not dividend
increase and buyback tell investors that firms have little chances to invest
is supported by few firms.
Third, the free cash flow hypothesis focuses on imperfectly contract.
Firms obtain cash flow by business activities in each fiscal year. Cash flow
is used to invest for business activity and is stored as retained earnings.
Managers may neglect their efforts since free cash flow is controlled bymanagers. This hypothesis implies that free cash flow is reduced andcorporate management is ordered if managers are promised to pay dividend(Grossman and Hart [1980]: Easterbrook [1984]: Jensen [1986]: Lang andLitzenberger [1989]). In other words, in this hypothesis, increase dividend
brings to stock rise through increase of monitoring for managers andreduction of agency cost.
In summary, dividend customer segment hypothesis implies neutrality of
dividend policy to stock value as same as MM theory while signaling
hypothesis and free cash flow hypothesis basically imply that dividend
increase is involved in stock rise and dividend cut is involved in decline instock prices. According to Ishikawa[2007], most of previous studies foundthat market evaluates positive to announcement of dividend increase while
market evaluates negative to announcement of dividend cut(Pettit [1972];
Charest [1978]; Aharony and Swary [1980]; Asquish and Mullins [1983];
Bajaj and Vijh [1990]; Michaely et al. [1995]). Then, Ishikawa[2007]
conclude that signaling hypothesis and free cash flow hypothesis are more
adequate than dividend customer segment hypothesis 6 .

5In addition, I introduce other two dividend theories. They are pecking
order hypothesis and life cycle hypothesis.
At first, pecking order hypothesis emphasizes on the merit of internalfinance in comparison of external finance. It is thought that asymmetric
information between firms and investors in external finance is larger thanin internal finance. Then, firms may not be able to raise fund at appropriate
cost if they raise fund by external finance (Myers and Majluf [1984]).
Hanaeda and Serita[2008] did not support this hypothesis.
Second, life cycle hypothesis emphasizes that dividend policy differs asstage of development of firms (DeAnglo, et al. [2006]). Especially, dividend
is not paid and retained earnings are stored even though newer firms gain
many profits since they strongly demand funds. Investors do not oppose. On
the other hand, profits are distributed for shareholders in older firms since
they do not have many attractive chances for investment. Firms which do
not carry out this dividend policy may face free cash flow problem. Hanaeda
and Serita[2008] did not support this hypothesis 7 .

III. Trend of dividend policy and shareholder structure in Japan

Ishikawa [2007] divides dividend policy from fiscal year 1977 into threeterms 8 . The first term is from fiscal year 1977 to 1991 and total amount ofdividend increase from 1 trillion to 2. 6 trillion yen. The second term is fromfiscal year 1992 to 2000 and this goes around from 2. 4 trillion to 2. 9trillion yen in this term. The third term begun at fiscal year 2001 and theamount of dividend increased four series years until fiscal year 2005. The
increases in fiscal year 2004 and 2005 are extreme and 1 trillion yen is
added series 2 year. After all, total amount ofdividend grew at 5. 22

trillion yen at fiscal year 2005 9 .
Moreover, standard of Dividend Per Share(DPS) is traditionally 5 yen perstock side by side in previous days by values that dividend is cost for6

capital(Hirota [1992]). In fact, about 20 % of firms pay dividend 5 yen perstock in 1980s. However, this proportion has decreased to 7,7 per cent at
fiscal year 2005. At the same time, the proportion of firms whose DPS is
more 5 yen and less than 10 yen has decreased from 44.6% at fiscal year
1989 to 16.5% at 2005. On the other hand, the proportion of firms whose
DPS is more 10 yen is 19.1% at fiscal year 1977 and 53.8% at 2005.
This is why more half of listed firms decide DPS more 10 yen. So, thetradition that dividend is 5 yen per stock has dead out. Additionally, thepercentage of firms whose DPS is maintained at a certain value and which
adopt stable dividend policy maintained at about between 50 % and 60 %until middle of 1990s and this percentage has declined since fiscal year
1992 in which the percentage is 61.8% and peak. On the other hand, thepercentage of firm which carry out dividend increase or resumption ofdividend has increased since fiscal year 2001 and about 40% of firms carriedout dividend increase or resumption of dividend in fiscal year 2004 and2005.
Moreover, some firms carry out to pay dividend at multi times per year as
interim dividend. The total amount of interim dividend gradually grew until
fiscal year 1990 and gone around from 900 million to 1.1 trillion until fiscal
2002. Then, this grew rapidly 1.5 trillion at fiscal 2004 and 2 trillion at
fiscal year 2005. The percentage of interim dividend for total dividend
stably maintains atnear less than 40% since fiscal year 1981. In addition,

the percentage of firms which carry out interim dividend grew from 36.3%
in fiscal year 1977 to 45.7% in 2005(Ishikawa [2007]).

Figure 1

I show the dividend’s trend of the listed manufacturing firm in Figure 1.
While dividend rate has

decreased until around 2000 , dividend rateincreased rapidly after that. The average dividend rate of the listed7

manufacturing firms is 3.40% at March 2008. However, this value is lower
than that of Europe and American firms 10 .

Figure 2

Next, I show the trend of shareholder structure from fiscal year 1985 to2008 in Figure 2. This shows that the percentage of nonfinancial firms andindividuals shareholders goes around 20% from fiscal year 2000 to 2009.
Then, the percentage of government and securities firm is extreme low andstable. On the other hand, the percentage of financial institutions is higher
than other term around 1990 and almost consistently has decreased sincethen. In contrast, the percentage of foreign shareholders is bottom in later
1980s and almost consistently has increased since then.

Figure 3

Moreover, I show detail trend of financial institutions in Figure 3. This
figure shows that the percentage of trust banks has been beyond thepercentage of commercial banks or region banks since fiscal year 1999
though the percentage of commercial bank or region banks was largest inelement of financial institutions in previous day. The percentage ofcommercial bank or region bank has decreased rapidly since then and is
4.3% at end of fiscal year 2009. In addition, the percentage of life insurance
firms has also decreased and is 5.0% at the end of fiscal year 2009 though it
was high in previous day. On the other hand, the percentage of trust banks
has increased rapidly especially since fiscal year 2000, accounting by 18.4%
at the end of fiscal year 2009 and largest in financial institutions. This is
why the probability that the character of financial institutions changed inlast 1990s exists.

8

IV. Analysis

1.

Data

At first, I explain data which are used in analysis. This data is from
Nikkei NEEDS Financial data. Target is manufacturing firms which werelisted by stock market except JASDAQ at March 31 at 1985. Target period isfrom March at 1985 to March at 2009. Target firms are maintained to belistedand to close a book in March in target period. Then, data isparent-only earnings. As a result, balanced panel data is composed of 438
firms and 24 years. Since depended variable is dividend rate one year after,
data of March 2009 is excluded.
In addition, I divide data in two periods: from March in 1985 to March in1996 and from March in 1997 to March in 2008 and analyze. It is worth toanalyze by dividing data since environment around Japanese firms changed
greatly as Shishido [2007] points.
Moreover, I divide firms into lower profitability firms and higher
profitability firms based on average of ROA from fiscal year 1984 to 2008
year of each firm and analyze. Then, I research whether or not level of
average of ROA has effected to the role of shareholder structure.
The dependent variable is the dividend rate one year after. The dividendrate is the total amount of dividend divided by the total equity.

2.

Control variables

Next, I introduce the control variables. The change of total equity in one
year is added since dividend rate is total amount of dividend divided bytotal equity. The coefficient is expected to be negative.
Then, ROA is added since dividend takes a role to pay profit toshareholders. Kubo and Saito [2006] found positive relationship between

9

ROA and dividend. So, the coefficient of ROA is expected to be positive.
In addition, the ratio of sales abroad to all sales is added. The firms set
dividend low level since they face high risk if the ratio is high. The
coefficient is expected to be negative.
Moreover, capital ratio is introduced
hesitate

to control financial status. Firms

to increase dividend rate if firms’ capital ratio is low andpressure to repay debt is high since the rights of shareholders aresubordinated to the rights of creditors. Kubo and Saito [2006] found anegative relationship between debt ratio and dividend. So, the coefficient of
capital ratio is expected to be positive.

3.

Independent variables

Next,

I

introduce

independent

variables

shareholders

structure.

Shareholders which are mentioned in this paper are nonfinancial firms,
financial institutions, foreign shareholders, mutual funds and officers. In
the following, I introduce the effects on dividend rates by each shareholder
structure.
Stable shareholders such as nonfinancial firms and financial institutions
are thought to decrease dividend rate. Some reason that stable shareholders
inhibit dividend in Japan exists. At first, in cross-shareholding (Sheard[1994]), if a firm demands its partner dividend increase, its partner will
also calls the firm dividend increase and the merit is offset. Second, profit isable to be used as investment if the dividend is low level(Thomas andWaring [1999]). So, firms have incentive to keep dividend rate low level.
Third, stable shareholders hope that partners store profits as retained
earnings so that their partners can bear change of environment to threaten
relationship transactions([Bourgerious [1981]]. Gedajlovic et al[2005] foundnegative relationship between the percentage of nonfinancial firms anddividend, however, not significant.

10However, we need to pay attention to the effect of financial institutions.
The relationship between financial institutions and nonfinancial firms has
become market-oriented since late of 1990s(e. g. Inoue 1999: Yasui [1999]).
Especially, Japanese financial institutions need to sell stock to gain cash
flow since they faced bad debt. In addition, they have had to select partner
firm carefully since this reasons(Fukao [1998]). Moreover, we need to pay
attention that the percentage of trust banks grows in financial institutions
as we see Figure 3. Gedajlovic et al[2005] found that dividend is large if thepercentage of financial institutions is high. In the first period of analysis,
financial institutions are thought to act as stable shareholders and inhibit
dividend. However, in second half, financial institutions are never thoughtto act as stable shareholders and call firm dividend increase.
Foreign shareholders are thought to increase dividend rate sinceinvestment purpose of institutional investors is to boost return by stock
investment as possible. Modigliani and Miller[1958] found no relationshipbetween dividend policy and shareholder value. However, agency theory
advocates that institutional investors like firms whose dividend is high. At
this point, Jensen[1989] pointed that interests of institutional investors areoriented free cash flow which is returned by dividend since incentive ofmanagers to manage firms effectively is gotten strong by the organization
slack([Cyert and March [1963]] inhibited. Gedajlovic et al[2005] found that
dividend is large if the percentage of foreign shareholders is high. In
addition, Hanaeda and Serita[2008] found that firms whose the percentageof foreign shareholders is high do not tend to agree opinions that firms must
inhibit dividend and buyback and store retaining earnings since cost ofretaining earnings is low and that firms must inhibit dividend and buyback
and store retaining earnings since a part of profit must be possessed by
employees.
However, this theory may not apply to mutual funds which are
institutional investors in Japan. The performance of mutual funds is11

evaluated in short term since sales activity of security firm makes mutual
funds repeat to buy and sell stock in Japan (Fukao [1999]). As a result,managers of mutual funds are not expected to invest in long term and toseek revenue as not dividend but capital gain. Moreover, Japanese firms’
managers who know these circumstances may decrease dividend if thepercentage of mutual funds increases. Gedajlovic et al[2005] found that
dividend is low if the percentage of mutual funds is large. This result is
consistent to expectations.
Lastly, insider shareholders call firms increase dividend for two reasons.
At first, according to agency theory, insider shareholders such as directors
are easy to increase dividend since they are easy to tell firms opinions about
residual profits in the respect of information and power (Alchian and
Demsetz [1972]). Second, returning cash flow to shareholders throughdividend makes insider shareholders take extra funds from firms and afford
to invest in other firms and disperse firm’s specific risk since revenue of
insider shareholders is heavily dependent on particular firms(Chandler[1990]; May [1995]) 11 .
Kubo and Saito[2006] analyzed relationship between the percentage ofmanagers in Japanese firms and decision of amount of dividend. As a result,they found significantly positive relationship between the percentage ofpresident or board members and dividend 12 .

4.

ResultTable 1

Table 1 shows descriptive statics before regressive analysis is carried out.
The value (in percentage) of financial institutions does not contain themutual funds in this analysis since the percentage of mutual funds is added
to the percentage of financial institutions in Nikkei NEEDS.

12

The percentage of foreign shareholders in this panel data is lower thanthe one shown in Figure 2. One reason is that investments by foreign
investors are biased to firms whose market capitalization is high. Anotherreason is thought that investments by foreign investors are biased to newer
companies since this sample is firms that consistently listed from March in1985 to March in 2009.
On the other hand, especially in the second half, the dividend rate islower than that showed in Figure 1. In addition, the dividend rate in second
half changes scarcely in one year in all firms at Table 1 while dividend rate
tends to increase from around fiscal year 2000 in Figure 1. So, it is thoughtthat the sample is biased by using firms whose closing month is March only.

Table 2

I show results of regressive analysis for all firms in Table 2 13 .
At first, it is found that dividend rate is inhibited in firms whose thepercentage of directors is high. Even though the revenue of directors
increases if dividend rate is high, it seems that directors do not increase
dividend rate. Otherwise, directors seem to hope not to increase dividend
but to store retained earnings. This opposes the hypnosis and previous
studies. However, the significant relationship disappears if data is divided
first half and second half. It seems that standard error increases andsignificance level is not satisfied since the number of data decreases.
Second, it is found that dividend rate increases in firms whose percentage
of financial institutions is high. Moreover, they increase dividend rate only
in second half if I divide data to first half and second half and analyze. Thisis the consistence of the hypothesis. Inoue [1999] and Yasui[1999] pointed
that the character of financial institutions has changed since middle of
1990s. In addition, Figure 3 implies that the character of financial
institutions changes by change of composition of financial institutions. At

13the relationship to dividend rate, this change of financial institutions isdemonstrated. However, in first half, the relationship is not significant.
Third, it is found that dividend rate increases in firms whose percentageof foreign shareholders is high. This is consistent to the hypothesis. In
other word, it means that dividend rate tends to increase since foreign
shareholders have strong interests in dividend and firms deal with theseshareholders. In addition, the effect of foreign shareholders has been lager
since middle of 1990s.
Forth, nonfinancial firms decreases dividend rate in only first half. In
other words, nonfinancial firms had acted as stable until middle of 1990s.
However, they have not acted so since middle of 1990s.
Fifth, the percentage of mutual funds is not significant.
In addition, the impact of shareholder structure such as foreign
shareholders to dividend rate is not big. For example, in second half, thecoefficient of foreign shareholders is 0.022 and average of the percentage of
foreign shareholders is 8.3%. This multiplication is 0.183%. In contrast to
the average of dividend rate one year after, 1.5%, average effectof foreign

shareholders is about one of eight to dividend rate.

Table 3

Next,

I

analyze

dividing

samplebytwogroupsbyprofitability.

Specifically, sample firms are divided by average of ROA at each firm in all
term. Hypothesis is thought that each shareholders increases dividendrate larger in lower profitability firms comparing to higher profitability
firms. This reason is that it is reasonable for shareholders to receive much
dividend from lower profitability firms and invest its fund to other firms
since lower profitability firms cannot use assets efficiently. Analysis
results are shown in Table 3.
At first, in lower profitability firms, the percentage of directors are14

significantly negative in only second half. On the other hand, in higher
profitability firms, this is significantly negative in both all term and second.
This result is consistent to the hypothesis.
Second, financial institutions increase dividend rate in all term andsecond half in lower profitability firms while they decrease only in first halfin higher profitability firms. This is consistent to the hypothesis.
Third, foreign shareholders increase dividend rate in all term and second
half in lower profitability firms while they increase dividend rate in allterm and second half in higher profitability firms, too. However, on theother hand, they decrease dividend rate in first half in higher profitability
firms. This is strange result. This implies that in this term foreign
investors intensively bought stocks of firms that are expected to increase
dividend and stock value in the future since profitability is high anddividend rate is low.
Forth, nonfinancial firms decrease dividend rate in first half in lower
profitability firms while they decrease dividend rate in all term, first halfand second half in higher profitability firms. This is consistent to the
hypothesis.
Fifth, mutual funds decrease dividend rate in first half in higher
profitability firms. This is consistent to the hypothesis.
These results are shown in Table 4.

Table 4

V. Summery

First, in analysis using all firms, foreign shareholders consistently
increase dividend rate while financial institutions increase dividend rate
only after late of 1990s. This is consistent to the hypothesis about financial
institutions. In other words, financial institutions may make firms increase15

dividend

since

the

characteroffinancial

institutions

changedmarket-oriented. On the other hand, nonfinancial firms had taken a role todecrease dividend rate until middle of 1990s. This means that nonfinancial
firms acted as stable shareholders. However, they have not acted so sincelater of 1990s.
Second, shareholders structure has not a big impact on dividend rate.
This means that dividend rate change has occurred regardless of thepercentage of foreign shareholders in each firm. In addition, dividend rate
is not high and does not increase in this sample. This implies that dividendrate keeps almost a certain value in older firms. Then, it is concluded thatJapanese firms do not change their behaviors like identical market based
financial countries.
Third, most of all shareholders tend to increase dividend rate in lower
profitability firms while they tend to decrease dividend rate in higher
profitability

firms

comparinglower

profitability

firms

and

higher

profitability firms. This means that many shareholders change attitude as
profitability of firms.
Forth, one of future tasks is analysis about buyback. Buyback may be also
deal with as the mean of distribution profit to shareholders as same as
dividend. However, shareholder ’s equity is hurt if a firm whose pricebook-value ratio (PBR) is high carry out buyback. As a result, interests ofshareholders that do not agree buyback are hurt. In addition, it takes a longtime to recover hurt shareholder ’s equity if firms whose price earnings ratio(PER) is high carry out buyback 14 . In short, not all firms that carry out
buyback are firms that return profits to shareholders. In other words, it is
not favorable to carry out buyback in firms whose PBR or PER is high eventhough it is favorable to carry out buyback in firms whose PBR or PER islow. One of future tasks is analysis about relationship between buyback andshareholder structure.

16

Footnotes
These firms tend to belong to IT-related or retail industries. Moreover,they tend be managed by promoters and younger companies. They are lessdependent on high skill by employees such as distribution industry,
dependent on high and general skill by employees such as IT-relatedindustries or combined with flexible outsider labor market.
2 See Jackson[2007] about change of distribution of added value in macrolevel.
3 Jackson[2007].
4 Generally speaking, firms do not change amount of dividend frequently
since firms do not have confidence to keep good performance to afford to
keep high level of dividend. On the other hand, they avoid decreasing
dividend as possible since dividend cut brings with sliding stock price.
This is called binding power in dividend. Especially, dividend has binding
power downward since dividend cut tends to be avoided
strongly(Ishikawa[2007]).
5 Hanaeda and Serita[2008] used data of questionnaire of listed firms andquestioned validity of information effect hypothesis, free cash flow
hypothesis, pecking order hypothesis and life cycle hypothesis.
6 However, Hanaeda and Serita[2008] pointed that free cash flow
hypothesis is not validity for dividend.
7 On the other hand, it is found that increase dividend is signal to mature offirm in US(Grullon et al. [2002]).
8 Targets in analysis of Ishikawa are firms listed closing from April in 1977
to March in 2006. The number of targets is 90289. They contain OTC
registration before 2001 but they do not contain banks, securities andinsurances.
9 The percentage of firms that pay dividend was at the top 93.7% in fiscal
year 1990. Then, the number decreased rapidly and was 72.3% in fiscal year
2001. However, this number recovered at 83.6% in fiscal year 2005.
10 According to “Initiatives to Increase Stock Value in Fiscal Year 2009” by
The Life Insurance Association of Japan, in fiscal year 2008, while dividendrate of Japanese firms is 2.2%, that of American firms is 6.8%. Moreover,Ishikawa[2007] pointed that dividend rate is 2.5% in Japan, 5% units in US
and 6% units in Europe in fiscal year 2005.
11 Additionally, it is thought that stock option takes a role to ease agency
problem between shareholders and managers as same as stocks possessedby managers. However, one of difference between option and stocks is that
option does not produce dividend. This is why the effect for option toincrease dividend is less little than that of stock in the theory(Kubo andSaito[2006]). In US, Fenn and Liang[2001] carried out analysis using dataof 1108 firms from 1993 to 1997. They found that managers who possessmany options do not tend to pay dividend and tend to carry out buyback.
12 Moreover, previous studies pointed that nonlinear relationships between
the percentage of managers and corporate performance may exist(Morck et
al. [1988]; Short et al. [1999]). This is called entrenchment effect . Thismeans that negative correlation between the percentage of managers andcorporate performance is found if the percentage of managers is beyond a117certain value while positive correlation is found if the percentage ofmanagers is small(Kubo and Saito[2006]). This relationship may also exist
in between the percentage of managers and dividend.
13 At the choice of regressive models, at first, both of cross section effect andtime effect are estimated by fixed effect model. Second, F-test is carriedout in cross section effect and time effect. Third, I choice a model whose
Akaike information criteria is most little. Forth, chosen model is estimatedagain converting in random effect model and I carry out Hausman test. I
choose fixed effect model if random effect model is rejected in 5%.
14 See this site(http://www.ccsjp.com/news/news20030326.htm).

18

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[2007]

Dividend

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Empirical

Analysis ,Chuokeizai-Sha.
Kubo, K., and T. Saito [2006] ”Corporate Governance and Payout Policy,”

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http://www.oecd.org/dataoecd/8/25/1931660.pdf.

221999),

Figure 1

Trend of Dividend Rate in Manufacturing
4

3.5
3
2.5
2

%

1.5
1
0.5
0

Note： Dividend rate is equal to value of sum of interim dividend and dividend at end of period of
normal stocks divided by shareholders equity. Values are these of parent-only earnings andaggregated by each of industry.
Source：Nikkei NEEDS Financial.

Figure 2

Trend of Shareholder Structure

1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

50
45
40
35
30
% 25
20
15
10
5
0

Fisical Year
Government

Financial Institutions

Security Firms

Nonfinancial Firms

Foreign Shareholders

Individuals

Note: Values are based on amount of money.
Source: Tokyo Stock Exchange, Kabushiki Bunpu Jokyo Chosa in fiscal year 200923

Figure 2

Trend of financial institutions and their contents

50
45
40
35
30
% 25
20
15
10
5
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

0

fiscal year
Financial Institutions
Commercial Banks and Region Banks
Trust Banks
Mutual Funds
Pansion Funds
Life Insurance
Casualty Insurance
Other Financial Institutions
Note: Mutual funds and pension funds are contained to commercial banks and regionbanks or trust banks. Trust banks are numbered from fiscal year 1986. Others arecommon to Figure 2.
Source: Common to Figure 2.

24

Table 1

Descriptive Statistics

all firms（allterm）
all firms（first half）
all firms（secondhalf）
lower
profitability（all term）
lower
profitability（first half）
lower
profitability（secondhalf）
higher
profitability（all term）
higher
profitability（first half）
higher
profitability（secondhalf）

nonfinancial
firms

capitalratio

changeof total
equitymanagers

dividend
rate

percentage
of sales inoverseafinancial
institutions

foreignshareholders

mutual
funds

ROA

1.7

dividendrate(oneyear
after)
1.7

averagestandard
deviation
averagestandard
deviation
averagestandard
deviation
averagestandard
deviation
averagestandard
deviation
averagestandard
deviation

29.4

40.9

5.8

2.0

12.9

30.9

6.3

2.0

3.7

18.2

18.7

72.4

3.9

1.2

1.1

16.1

14.3

8.4

3.4

3.8

31.2

37.5

8.1

2.7

1.9

1.8

12.2

32.5

4.3

2.2

4.1

18.2

17.8

58.2

4.8

1.2

1.2

14.1

14.3

5.7

3.3

3.8

27.6

44.3

3.5

1.3

1.5

1.5

13.5

29.3

8.3

1.8

3.3

18.0

19.0

84.2

2.6

1.1

1.1

17.9

14.2

10.0

3.50

3.8

29.4

35.3

4.5

1.9

1.5

1.5

13.4

30.3

5.4

1.9

2.1

18.4

17.0

71.7

3.8

1.3

1.3

17.0

14.6

7.8

3.4

3.3

31.2

33.2

7.7

2.5

1.8

1.8

13.0

32.6

3.9

2.0

2.6

18.5

16.6

69.9

4.6

1.4

1.3

15.0

14.5

5.7

3.2

3.4

27.6

37.3

1.2

1.3

1.2

1.2

13.8

28.0

6.9

1.7

1.6

18.2

17.1

73.3

2.6

1.1

1.1

18.7

14.2

9.2

3.6

3.0

averagestandard
deviation
averagestandard
deviation
averagestandard
deviation

29.4

46.5

7.2

2.1

1.9

1.9

12.3

31.5

7.2

2.1

5.2

17.9

18.6

73.2

4.0

1.0

1.0

15.2

14.0

8.9

3.4

3.7

31.2

41.9

8.5

2.9

2.0

1.9

11.4

32.4

4.7

2.4

5.6

17.9

17.8

43.3

4.9

1.0

1.0

13.0

14.0

5.7

3.4

3.6

27.6

51.2

5.9

1.3

1.7

1.8

13.2

30.6

9.8

1.9

4.9

17.8

18.3

94.0

2.5

1.0

1.0

17.1

14.0

10.6

3.4

3.8

Note: Average and standard deviation are presented and calculated by per cent.

25

Table 2 Results of Regressive Analysis (All Firms)
constant
financial
institutions
foreignshareholders
nonfinancial
firms
managers
mutual funds
capital ratiochange of total
equitypercentage ofsales
inoversea
ROA
cross section
effecttime effect
Adj-R2F-valueNall term
0.926***
0.091
0.008***
0.001
0.020***
0.002-0.0010.001-0.007+0.004-0.005
0.003
0.001
0.001
-2.61E-05
0.000-0.0000.001

first half
2.182***
0.194
0.002
0.004
0.008*
0.004-0.021***
0.003-0.0070.006-0.0020.006-0.004*0.002-0.0000.000-0.005*0.003

second half
0.724***
0.102
0.005**
0.002
0.022***
0.002
0.001
0.002
-0.0090.007-0.0050.004
0.003**
0.001
8.94E-05
0.000-0.0010.001

0.107***
0.003
Random0.111***
0.004
Fixed

0.092***
0.004
RandomRandom0.165
232.0***
10512

Fixed
0.503
12.63***
5256

Fixed
0.321
125.2***
5256

Note: The number in upper row is coefficient. That in under row is standard deviation.
Eviews6.0 is used in analysis. ***, **, * and + denote coefficients significant at the 0.1%, 1%,
5% and 10% levels.

26

Table 3

Results of Regressive Analysis (Divided by Profitability)

constant
financial
institutions
foreignshareholders
nonfinancial
firms
managers
mutual funds
capital ratiochange of total
equitypercentage ofsales
inoversea
ROA
cross section
effecttime effect
Adj-R2F-valueNall term
0.575***
0.128
0.013***
0.002
0.024***
0.003
0.001
0.002
0.008
0.006
0.005
0.005
0.002
0.001
7.58E-05
0.000-0.0010.001

lower profitability
first halfsecond half
1.816***
0.308+
0.231
0.185
0.006
0.006+
0.004
0.003
0.006
0.026***
0.006
0.003
-0.012***
0.002
0.003
0.003
-0.0020.022+
0.008
0.012-0.005-0.0090.009
0.006-0.007**0.009***
0.002
0.002
-0.0000.0004*0.000
0.0002-0.007**-0.0000.003
0.002

all term
1.628***
0.126-0.0020.002
0.015***
0.002-0.005**0.002-0.016***0.005-0.0020.004-0.002*0.001-0.0000.000-3.82E-05
0.001

higher profitability
first halfsecond half
2.531***
1.504***
0.206
0.149
-0.006+-0.0030.003
0.002-0.011**0.015***
0.004
0.003
-0.011***-0.004+0.003
0.002-0.009-0.040***
0.007
0.011
-0.019**
0.000
0.006
0.005
-0.013***
0.001
0.002
0.002
-0.000-9.06E-05
0.000
0.000
0.004
-0.003**
0.002
0.001

0.139***
0.004
Random0.158***
0.006
Random

0.108***
0.006
Fixed

0.089***
0.003
Random0.101***
0.005
Random

0.078***
0.005
RandomRandom0.198
145.1***
5256

Random
0.216
81.39
2628

Fixed
0.572
15.72***
2628

Random0.148
102.1***
5256

Random0.192
70.50***
2628

Random
0.323
63.78***
2628

foreignshareholders
positive
positivefinancial
institutions
positive
unknown

nonfinancial
firms
unknown
negative

positive

positive

positive
unknown

Note: Common to Table 2.

Table 4 Summary of Results

all firms

lower
profitability
higher
profitability

all term
first halfsecondhalf
all term
first halfsecondhalf
all term
first halfsecondhalf

negative
unknown

mutualfunds
unknown
unknown

unknown

unknown

unknown

positive
unknown

unknown
negative

unknown
unknown

unknown
unknown

positive

positive

unknown

positive

unknown

positive
negative

unknown
negative

negative
negative

negative
unknown

unknown
negative

positive

unknown

negative

negative

unknown

27

managers