Empirical Analysis on the Dividend Life-Cycle eory:
Evidence from Japan
H I*Graduate School of Business
OSAKA City UNIVERSITY

ABSTRACTis paper aims to clarify a characteristic of the dividend policies of Japanese firms byverifying the dividend life-cycle theory. e analysis revealed that in Japan, growing firms
choose further dividend increases compared to mature firms, and that such dividend
increases by the growing firms are appreciated by the market more than those by the maturefirms. ese findings are not consistent with the prediction by the dividend life-cycle theory,
but can be interpreted using the concept of corroboration effect.
JEL Classification: G14; G35; M41
Key Words: Dividend Life-Cycle eory; Dividend Policy; Corroboration Effect; Signaling;
Earnings Predictability

1. Introduction
e growing firms with abundant investment opportunities should prioritize retained earnings(RE) rather than return to shareholders in preparation for necessary investment for their future
growth. On the other hand, it is preferable for the mature firms to return excess funds to shareholders
in order to partly ease free cash flow problems ( Jensen 1986). is idea is well known as the dividend
life-cycle theory (Fama and French 2001; Grullon et al. 2002; Julio and Ikenberry 2004; DeAngelo
and DeAngelo 2006; DeAngelo et al. 2006). In the US, there is evidence consistent with the theory.
For example, DeAngelo et al. (2006) positions a RE ratio (= RE/book-value of equity) as a scale toexpress the stages of firm growth, and presents evidence that firms with high RE (mature firms) pay
dividends.
Over the past two decades in the US, the percentage of firms with negative RE and that ofones with negative earnings has been increasing (Collins et al. 1997; Collins et al. 1999; DeAngelo* Corresponding Author. Address Osaka City University, 3-3-138, Sugimoto, Sumiyoshi, Osaka, 558-8585, JAPAN.
Telephone +81-6-6605-2210 E-mail h-ishikawa@bus.osaka-cu.ac.jp
Received June 29, 2011; accepted September 15, 2011

Copyright©2011 Research Institute for Economics & Business Administration - Kobe University.

e Japanese Accounting Review, 1 (2011), 39-60

40

et al. 2006). Furthermore, share repurchases have substituted for dividends (Grullon and Michaely
2002). Consequently, the ratio of firms paying dividends decreased drastically, and only about 20%of all firms paid dividends in 1999 (Fama and French 2001). On the other hand, the situation in
Japan is considerably different from that in the US. Over the past 30 years in Japan, 70% or moreof firms have constantly paid dividends. At least until now, the substitution of share repurchases for
dividends is unpopular (Ishikawa 2007). Japanese firms have special feelings for paying dividends. In
consideration of the facts stated above, in the US, it is important to compare dividend-paying firms
with firms that do not pay dividends. However, in Japan where most firms pay dividends, the mostimportant issue is comparisons between dividend-increasing firms (or dividend-decreasing firms) andstable dividend-paying firms.
is study empirically analyzes the dividend policies of Japanese firms from the viewpoint of
the dividend life-cycle theory. First, I analyzed determining factors in selecting a dividend increase or
decrease. Do the growing firms select RE (or a dividend decrease if more funds are demanded) rather
than a dividend increase? Do the mature firms further select dividend increases? Second, I analyzed
the market valuation of dividend increases and decreases. When the market accepts the dividend
life-cycle theory at face value, dividend increases by the mature firms will be more appreciated andthose by the growing firms will be less appreciated. Meanwhile, it is expected that dividend decreases
by the mature firms are more depreciated, and on the contrary, those by the growing firms are lessdepreciated.
is paper is organized as follows. In the second section, I provide the research design used for
determining factors in selecting a dividend increase or decrease. In the third section, I present the
samples and descriptive statistics. In the fourth section, I conduct a logit regression analysis, and in
the fifth section, I analyze the relationship between dividend increases (decreases) and stock prices.
In the sixth section, I conduct an additional analysis to verify the ability of dividends to predict future
earnings, and in the seventh section, I present the summary and conclusion.

2. Research Design
To analyze determining factors in selecting dividend increases or decreases, I collect samples of(a) dividend-increasing firms, (b) dividend-decreasing firms, and (c) stable dividend-paying firms.
Logit regression analysis is then applied to a regression model of the equation (1) for the “dividendincreasing firm sample” consisting of (a) and (c) and the “dividend-decreasing firm sample” consistingof (b) and (c). e dependent variable for the dividend-increasing firm sample (incdiv) is given as 1
in case of the dividend-increasing firm, otherwise 0 (in case of the stable dividend-paying firm). For
the dividend-decreasing firm sample, a dummy variable (decdiv) is similarly set.
incdiv (decdiv) = a0 + a1·GROWTH + a2·ICF + a3·RE +a4·TE + a5·CASH+ a6·ROA + a7·incearn + a8·DOE + a9·REP + a10·ln(MVE)+ a11·BANK + a12·FOREIGN + a13·INDIVIDUAL + ε.

(1)

Independent variables are ones adopted in previous researches (DeAngelo et al. 2000; Lie 2000;
DeAngelo et al. 2006; Damodaran 2006). e definition of independent variables, which explains theselection of dividend increases, and the explanation of the assumption on signs of their coefficientsare as follows.1
1

e assumption on signs of coefficients of the dividend-decreasing firm sample is the opposite. To avoid overlapping explanation, I
will not refer to it hereafter. e ratio depending on flows (stocks) is calculated on the basis of data in the current term (at the endof previous term).

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory41(1) Growth potential
Since firms with many opportunities for growth need investment funds under the dividend
life-cycle theory, they may prefer RE (or dividend decreases if demanding more funds) to dividend
increases. In this case, the expected sign of a coefficient of GROWTH is negative. In this study, I
adopt either of the following: (1) sales growth ratio (SGR), (2) asset growth ratio (AGR), or (3)price-to-book ratio (PBR), as proxy variables of GROWTH.2 (3) PBR presents the stock market’s
evaluation of growth potential of the firm. Growing firms are likely to have higher values of thesevariables.3
Meanwhile, it is presumable to comprehend the firm growth stage by measuring the relative
size of investment cash flow (ICF). at is, it is assumed that the firm with a relatively large ICF is a
growing firm. To make a consistent interpretation with the above, the ICF is multiplied by “–1”,4 andthe scale deflated by the operating cash flow (except samples with operating cash flow at 0 or less),which is its basic resource, is used.5 Furthermore, DeAngelo et al. (2006) focuses on the RE ratio as aratio presenting firm growth stages. It is assumed that the mature firms have retained more earnings.
Consequently, from the viewpoint of the life-cycle theory, the expected sign of the coefficient of RE
is positive. RE may be simply proxy for capital and financial compositions. us, (2) book-value ofequity to total assets ratio (TE) and (3) the excess fund balance are controlled.
(2) Capital structureFirms with greater equity are likely to have greater ability to increase dividends. ey may also
have incentives to boost ROE by increasing dividends. On the contrary, it is not expected that firms
with less equity will increase dividends while further deteriorating their own financial conditions.
Meanwhile, supposing that a firm with high TE is a mature firm, the same hypothesis can also beestablished under the life-cycle theory, that is, the expected sign of the coefficient of TE is positive.
(3) Excess fund balancee more the excess amount of funds, the larger is the ability for dividend increases. Such firms
may have incentives to reduce agency costs by spending excess funds outside (the free cash flow
theory). When we define a firm with abundant excess funds as a mature firm, the same hypothesis
can also be established under the life-cycle theory. On the other hand, when it is assumed thata growing firm reserves excess funds in preparation for future investment for growth, the sign ofcoefficient of excess funds may be the opposite. In this study, I use the following: (a) ratio of liquidity
on hand (CASH) and (b) net financial asset ratio (NETCASH) as proxy variables of excess funds.6(4) Profitability
I adopt a return on asset (ROA) as a scale of profitability (DeAngelo et al. 2006). In general, afirm with high profitability has high extra ability for dividend increases. In this case, the expected
To grasp the long-term growth of the firm, it is possible to use long-term mean values of SGR and AGR (and ICF and ROA
stated below). In that case, the essential result is the same.
3
Meanwhile, in firms with negative values of SGR and AGR, not only mature but also declining firms may be included. erefore,
the analysis with limited samples meeting the requirement of [SGR, AGR≥0] was additionally conducted. While the analysis
result is omitted here because of space limitations, the major conclusion of this study is not changed. As for PBR, it is difficult to
set the threshold between the mature firms and the declining ones (same as RE stated below).
4
Numerators of DOE and REP stated below are also multiplied by “–1”.
5
While I conduct the analysis excluding samples with negative ICF, the fundamental implication described below remains
unchanged.
6
e empirical result stated below was drawn using CASH. In case of using NETCASH, the result was almost the same.
2

42

e Japanese Accounting Review, 1 (2011), 39-60

sign of the coefficient of ROA is positive. However, if ROA is considered a proxy variable with regard
to the quality of investment opportunity (i.e., a firm with high ROA is equal to a growing firm), theexpected sign is the opposite.
(5) Vector of changes in earnings
In general, when earnings increase, firms increase dividends. On the other hand, when we
consider earnings increasing firm as a growing firm, the opposite assumption is set under the lifecycle theory. In this study, dummy variables (incearn) are set, to which 1 is given in case of increased
earnings in the current term, otherwise 0.
(6) e Latest Dividend on Equity
A firm originally with a high DOE has less capability to increase dividends. In this case, thesign of the coefficient of DOE is expected to be negative. In terms of market pressure to increase
dividends (a firm with a lower DOE is more pressured to increase dividends), the sign is expected tobe the same. On the other hand, if it is assumed that a firm with high dividends is originally eager toincrease dividends, the expected sign may be the opposite. Consistent with the following definitionof the share repurchase ratio (REP), dividend on the cash flow statement (dividend at the end of
previous term + interim dividend for the current term) is used for the numerator of DOE.7(7) Repurchase
Share repurchase, as well as dividends, is a major method of returning earnings to shareholders.
If share repurchases are substituted for dividend increases (the substitution hypothesis), 8 thecoefficient of the REP is assumed to be negative. Meanwhile, if a firm eager to increase dividends is
concurrently repurchasing its own stock against the substitution hypothesis, the sign is expected to be
the opposite.
(8) Firm size
A larger firm is likely to be a mature firm. From the viewpoint of the life-cycle theory, such afirm is likely to prefer dividend increases. Assuming that the firm size is a proxy variable presenting
alternative fund raising ability, as large-sized firms with higher credit have alternative resources forfund raising, they do not need to reserve excess funds. In other words, larger the firm size, more
possible are the dividend increases. Even on the basis of this hypothesis, the coefficient of ln(MVE)is positive.
(9) Shareholder composition
Sophisticated investors such as financial institutes and foreign investors are generally expected
to prefer dividend increases to ease free cash flow problems, particularly where they have the natureof activist shareholders. While individual investors may also prefer dividend increases, there is astrong negative correlation on both a level basis and on a year-on-year basis between the foreign
ownership ratio (FOREIGN) or the bank ownership ratio (BANK) and the individual ownership
ratio (INDIVIDUAL),9 so the coefficient of individual ownership may be negative.
Note that dependent variables (incdiv, decdiv) are set according to the difference between current DPS (current interim DPS +DPS at the end of current term) and DPS in the previous term. Even if DOE or dividend yields in the previous term are used, theresult remains unchanged.
8
In the US, there is evidence supporting the substitution hypothesis (Grullon and Michaely 2002).
9
For example, the correlation coefficient of FOREIGN and INDIVIDUAL is –0.313 on a level basis (annual average from 1990 to2007) and –0.357 on a year-on-year basis (same as above). e latest correlation coefficients are –0.485 and –0.356 respectively.
7

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory43

3. Sample and Descriptive Statistics
3.1 Sample Selection
Samples for the analysis of determining factors in selecting dividend increases or decreases
consist of 3,008 firm-years ended in March, from 2002 to 2005, meeting the following conditions.
(i) From 1999 to 2007, the fiscal year must end in March. In the fourth section, I analyze
the same samples as those in the financial profile analysis in the sixth section. In the sixth section,
the relevant fiscal years of firms that changed dividends (dividend-increasing firm and dividenddecreasing firm) are defined as [ t = 0 ], and the financial ratios of five fiscal years before and after
the change in dividend (–2 ≦ t ≦ 2) are compared with those of the control firms with constantdividends (stable dividend-paying firms). For this purpose, in case of analysis for the first fiscal year
ending in March 2002, complete data from the fiscal years ended in March from 2000 through 2004
must be available. e financial year ending in March 2000 is required because of the necessity forcash flow statements. Furthermore, since some financial ratios need year-on-year changes, the firstfiscal year to extract data is the year that ended in March 1999.
(ii) From 1999 to 2007, each fiscal year ending in March must contain twelve months and meetthe requirement of [0.8 < percentage change in total number of stock issued < 1.2]. In this study,
incdiv (decdiv) of equation (1) is determined using a change in the dividend per share, the latter
requirement is imposed to mitigate the effects from substantial dividend increases with stock splits.
(iii) Dividends must be paid in the current and previous terms. In this study, firms which resume
dividends, pay no dividend, and continuously don’t pay dividend are excluded from the samples. (iv)
Commemorative dividends (memorial dividends) should not be regarded as a change in dividends
for the current term.10 In other words, only ordinary dividends are analyzed in this study. (v) Stockprices and financial data required for the analysis can be collected from Stock Price CD-ROM (ToyoKeizai, Inc.) and Nikkei NEEDS Financial Quest (Nikkei Media Marketing, Inc.),11 and it is possible
to compute each financial ratio for all fiscal terms ended in March, from 1999 to 2007.12
I identified the following samples after excluding outliers in the top and the bottom 0.5% foreach financial ratio in all nine relevant fiscal terms,13 while meeting the above five requirements: 898
dividend-increasing firms (82, 154, 273, 389), 196 dividend-decreasing firms (104, 50, 28, 14), and
1,914 stable dividend-paying firms14 (526, 549, 468, 371)15 (Parenthetic figures are the numbers offirms in each fiscal term ended in March, from 2002 to 2005).
3.2 Univariate Analysis
First, for each independent variable in the equation (1), I examine whether there is a statisticallysignificant difference between (a) the dividend-increasing firms and (c) the stable dividend-paying
For a comparison between commemorative dividends and ordinary dividends, see Ishikawa (2005).
In this study, I basically used consolidated data. If there is no consolidated data, non-consolidated data of a parent company isused as a substitute for it. Retained earnings ratio is calculated on the basis of data of the parent company.
12
To be more specific, requirements of [operating cash flow > 0] and [book-value of equity > 0] are imposed. e former (the latter)
requirement is necessary for calculating an ICF (PBR, RE, DOE, and REP).
13
To be exact, for TE, CASH, NETCASH, ln(MVE), and three ownership ratios in which extremely abnormal values do not occur,
outliers are not processed. For DOE and REP (negative values are excluded) (both having 0 or more), the outliers only in the top
are excluded.
14
A stable dividend-paying firm is defined as a firm of which ordinary dividend per share for the current and previous term are same,
and which does not pay any commemorative dividends in the current and previous term.
15
In this study, I handle an identical firm in a different fiscal term as a different sample. Although analyses for each term ending inMarch, from 2002 to 2005, were conducted, the results are omitted because of space limitations.
1011

1.126

1.303

0.501

0.152

0.039

0.839

0.014

0.007

24.308

0.292

0.109

0.336

TE

CASH

ROA

incearn

DOE

REP

ln(MVE)BANKFOREIGNINDIVIDUAL

0.299

0.071

0.283

24.143

0.000

0.013

–

0.034

0.123

0.489

0.519

0.191

0.112

0.151

1.883

0.016

0.008

–

0.029

0.113

0.202

0.227

1.064

0.744

0.084

0.104

std.

0.407

0.055

0.273

23.736

0.005

0.018

0.260

-0.005

0.129

0.460

0.483

1.085

0.923

-0.037-0.055

ave.

0.402

0.018

0.242

23.399

0.000

0.015

–

0.003

0.111

0.427

0.444

0.626

0.718

-0.041-0.051

med.

0.196

0.075

0.168

1.815

0.012

0.011

–

0.031

0.084

0.202

0.190

2.465

0.694

0.082

0.110

std.

0.378

0.063

0.275

23.789

0.005

0.015

0.553

0.017

0.133

0.471

0.519

0.726

0.943

-0.004

0.006

ave.

0.357

0.024

0.247

23.567

0.000

0.014

–

0.016

0.110

0.464

0.537

0.580

0.801

-0.007

0.004

med.

0.183

0.089

0.158

1.749

0.012

0.008

–

0.021

0.099

0.199

0.212

1.584

0.580

0.069

0.087

std.

+/-

+

+

+

+/-

+/-

+/-

+/-

+/-

+

+

-

-

-

-

(a) - (c)Hypothesis

4.271***

3.525***-1.511-1.773–9.592***

2.968**

6.930***

3.970***-4.302*** -4.803***9.225***

2.745**

7.148***

3.699***-3.434*** -4.142***14.755***23.564*** 22.805***4.770***

3.719***-1.900-1.31113.973*** 14.519***13.748*** 14.583***

15.534*** 17.488***

Difference Test b:(a) - (c)ave.
med.
t-valuez-value

+/-

-

-

-

+/-

+/-

+/-

+/-

+/-

-

-

+

+

+

+

(b) - (c)Hypothesis
z-value

0.354-0.944-2.792**1.590-1.8031.736-0.355-0.228-0.403-0.7484.333***-7.812***1.346-0.401-0.248-0.687-1.5842.703**–-13.033*** -11.303***-0.468-0.747-2.313*2.842**-0.463-6.127*** -6.460***-9.043*** -9.023***t-value

Difference Test b:(b) - (c)cSGR (AGR) = Current sales growth rate (current total assets growth rate), PBR = Price to book-value ratio at the end of the current term, ICF = Current ICF ratio [=Investment CF*(−1)/Operating
CF (positive)], RE = Retained earnings ratio at the end of the previous term divided (=Retained earnings/book-value of equity (positive, and so forth)), TE = Equity to total assets ratio at the endof the previous term (=book-value of equity/total assets), CASH = Ratio of liquidity on hand at the end of the previous term (=liquidity on hand/total assets), ROA = Current ROA (=current net
earnings/average total assets), incearn = Dummy variable in which 1 is given in case of increased earnings (on current net earnings basis) in the current term, otherwise 0. DOE = Current DOE[=the amount of dividend paid (on the basis of CF statements)*(−1)/book-value of equity], REP = Current Repurchase ratio (=expenditure because of acquisition of own shares (on the basis of
CF statements)*(−1)/book-value of equity, ln (MVE) = Natural logarithm of the total market value at the end of the previous term, BANK = Bank ownership ratio at the end of the previous term(including securities companies), FOREIGN = Foreign ownership ratio at the end of the previous term, and INDIVIDUAL = Individual ownership ratio at the end of the previous term. I generally
use consolidated data. If there is no consolidated data, non-consolidated data of parent company is used as a substitute for it.

b

e t-test with independent samples is used to examine differences in average (if equal variances are not assumed), and the Mann-Whitney test with independent samples is used to examine
differences in median. As for dummy variables (incearn), the ratio of samples allocated 1 and z-value obtained in the difference test are shown.

Note: a Dividend-increasing firm is a firm that only increases ordinary dividends in the current term, and dividend-decreasing firm is a firm that only decreases ordinary dividends in the current term.
Stable dividend-paying firm is a firm that does not change ordinary dividends in the current term. All these forms are limited to firms that paid dividends in the current and previous terms. Samples
consist of firms with the fiscal year ending in March, from 2002 to 2005 (pooled sample).

*, **, *** Singnificant at the 5%, 1%, and 0.1% levels (two-tailed test), respectivily.

0.503

0.528

0.031

0.037

0.650

0.053

med.

0.064

ave.

RE

ICF

SGR
(GROWTH)AGR(GROWTH)PBR(GROWTH)variables c(a) Dividend-Increasing Firm (b) Dividend-Decreasing Firm (c) Stable Dividend-Paying(n=898) a(n=196) a
Firm (n=1,914) aT 1: D S  T  D  A/M

44
e Japanese Accounting Review, 1 (2011), 39-60

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory45

firms, and between (b) the dividend-decreasing firms and (c). In Table 1, the average and medianof (a) – (c) and the results of the test of those differences are summarized. Furthermore, t-test
with independent samples is applied to examine the differences in average (if equal variances are
not assumed), and the Mann-Whitney test with independent samples is applied to examine thedifferences in median.16
According to the comparison between (a) and (c) in Table 1, it is apparent that dividendincreasing firms have the following features that are statistically significant in comparison withstable dividend-paying firms: Higher GROWTH, higher TE, abundant excess funds (CASH),
higher profitability (ROA), having a vector of increasing earnings (incearn), lower DOE, more active
share repurchases (REP), larger firm size [ln(MVE)], higher BANK, higher FOREIGN, and lower
INDIVIDUAL.17
Among them, the results of TE, CASH, and ln(MVE) are considered to be consistent with theprediction of the life-cycle theory when the firm with each great scale is regarded as a mature firm.
However, it is possible to explain them with other hypotheses. For example, the firms with abundant
equity capital and excess funds are not so much at a risk of deterioration in their financial conditions,even with dividend increases. e result of TE can be considered to be the result of corporate
behavior to aim at improvement in capital efficiency. ere may be a market pressure for dividend
increases behind it. e result of excess funds is consistent with the prediction of the free cash flow
theory. e result of firm size can be interpreted by considering the market pressure for dividend
increases (large firms attract more attention from the market and are more pressured to increase
dividends), as well as the ability of alternative fund raising (as large firms have resources to raisealternative funds, dividend increases are less constrained).
Meanwhile GROWTH, ROA, and incearn have the results opposite to that predicted by thelife-cycle theory.18 In fact, the firms expected to grow highly, such as firms with a high growth ratio
in sales and total assets, those appreciated by the market because of their high growth, those withhigh profitability or quality of investment opportunities, and those with increasing earnings, probably
prefer dividend increases to stable dividend payments.
Finally, we focus on the results of DOE and the stock ownership structure. ere is a typicalscenario that a firm with a relatively low DOE increases dividends as pressured for dividend
increases by foreign investors including activist shareholders.19 e result that more stable dividendpaying firms have a high individual ownership ratio compared to dividend-increasing firms is alsointeresting. It is unlikely that individual investors prefer stable dividends to dividend increases.
Consequently, it is more natural to interpret this result as meaning that firms with a high individualownership ratio are not pressured much for dividend increases by shareholders.
Next, according to the comparison between (b) and (c), it is apparent that dividend-decreasing
firms have the following features that are statistically significant in comparison with stable dividendpaying firms: Lower GROWTH, higher ICF, lower RE, lower profitability (ROA), having no vector
As for dummy variables (incearn), the ratio of samples allocated 1 (box of average) and z-value (box of t- value) obtained in the
difference test are shown.
17
Relative investment cash flow (ICF) has a sign consistent with that expected according to the dividend life-cycle theory, but its
level of statistical significance is low. Meanwhile, the retained earnings ratio (RE) has a sign opposite to that expected according
to the theory, but its level of significance is also low.
18
In firms with negative ROA, not only mature firms but also declining ones may be included. Although I attempted the analysis
excluding such firms, its result was basically the same as that of the one given in Table 1 (and Table 3 shown below).
19
e result of REP that firms which increased dividends are active in share repurchase is quite interesting. is supports the fact
that, at least during the analysis period of this study, the substitute hypothesis of share repurchases for dividends has not been
proved yet in Japan.
16

TE

1.000
0.567
0.234
-0.058-0.3330.131-0.157-0.247
0.072
0.161

1.000
0.370
0.234
0.190
-0.063-0.1800.026-0.123-0.210
0.012
0.045

1.000
0.580
0.295
-0.021-0.2420.132-0.101-0.206
0.119
0.122

1.000
0.375
0.252
0.166
-0.078-0.1090.020-0.051-0.1670.070-0.011
RE

TE

RE

1.000
0.228
-0.046-0.1060.116-0.108-0.173
0.122
0.180

CASH

1.000
0.298
-0.016-0.0350.119-0.043-0.145
0.193
0.148

CASH

1.000
0.297
0.047
0.061
0.041
-0.0670.060-0.034

ROA

1.000
0.323
0.144
0.095
0.148
-0.0020.208-0.092ROA

1.000-0.0120.002-0.0340.020-0.020-0.016

incearn

1.000-0.026
0.024
0.014
0.035
0.043
-0.028incearn

1.000
0.134
0.139
0.082
-0.014
0.005

DOE

1.000
0.135
0.146
0.110
0.031
-0.017

DOE

1.000
0.115
0.119
0.103
-0.020

REP

1.000
0.133
0.117
0.106
-0.022

REP

1.000
0.676
0.625
-0.545

MVE

1.000
0.676
0.651
-0.589

MVE

1.000
0.399
-0.518

BANK

1.000
0.411
-0.538BANK

1.000-0.446FRGN

1.000-0.471

FRGN

1.000

INDI

1.000

INDI

AGR
-0.132
1.000
0.114
0.099
0.098
0.050
0.345
0.157
-0.018-0.054-0.032-0.081
0.007
0.036

AGR
0.251
1.000
0.107
0.088
0.131
0.087
0.408
0.190
0.012
-0.0750.031-0.0490.074-0.011
PBR-0.0101.000
0.008-0.217-0.292-0.049
0.179
0.044
0.485
0.049
0.513
0.305
0.299
-0.262

PBR
0.255
1.000
0.010
-0.158-0.195
0.048
0.401
0.118
0.441
0.065
0.511
0.312
0.356
-0.284bincdiv (decdiv) is a dummy variable. If the sample is a dividend-increasing (decreasing) firm, 1 is given, and if the sample is a firm paying stabledividends, 0 is given. For details of other variables and samples, see Table 1.

Note: a Panel A (Panel B) presents the Pearson product-moment correlation coefficients of dividend-increasing (decreasing) firm sample consisting ofdividend-increasing (decreasing) firms and stable dividend-paying firms. e results in the case of adopting AGR or PBR as a variable of GROWTH
instead of SGR are shown on the right side of the dotted lines.

Panel B: Dividend-Decreasing Firm Sample
variables bdecdiv
SGR
ICF
decdiv
1.000
GROWTH-0.193
1.000
ICF
0.062
0.018
1.000
RE
-0.050-0.0120.061
TE-0.016-0.028-0.009CASH-0.010-0.0240.001
ROA-0.2730.275-0.041incearn-0.1700.257-0.069
DOE
0.094
0.026
-0.013
REP-0.016-0.004-0.041ln(MVE)-0.0090.002-0.033
BANK-0.005-0.013-0.033
FOREIGN
0.008-0.001-0.017
INDIVIDUAL
0.038-0.0090.005

Panel A: Dividend-Iincreasing Firm Sample
variables b
incdiv
SGR
ICF
incdiv
1.000
GROWTH
0.281
1.000
ICF
-0.025
0.013
1.000
RE
-0.036-0.026
0.052
TE
0.070
0.008
0.011
CASH
0.090
-0.004
0.005
ROA
0.406
0.340
-0.045incearn0.278
0.271-0.066
DOE-0.0650.030-0.032REP
0.070-0.019-0.061ln(MVE)
0.134
0.059-0.012
BANK
0.052
0.016
-0.033
FOREIGN
0.171
0.064-0.005
INDIVIDUAL -0.081-0.051
0.000

T 2: C C a46
e Japanese Accounting Review, 1 (2011), 39-60

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory47

of increasing earnings (incearn), and higher DOE.20
Among them, while the results of ICF and RE are consistent with the prediction of the lifecycle theory, the interpretation focusing on business performance and financial conditions is available.
When the main business deteriorates and operating cash flow shrinks (to the extent of positive
value), ICF increases (given other conditions). Of course, as business performance worsen, RE would
show a downward tendency. Rather than growing firms, firms with declining business performanceand poor financial conditions may be selecting dividend decreases.
Meanwhile, GROWTH, ROA and incearn have the opposite results to the prediction of thelife-cycle theory. is result is consistent with the result of dividend-increasing firms. In fact, it ishighly possible that such low-growth firms, such as firms with low growth in sales and total assets,
low profitability or quality of investment, and declining earnings, select dividend decreases.21
3.3 Correlation Coefficient
Panel A in Table 2 presents the correlation coefficients of the dividend-increasing firm sample
consisting of (a) dividend-increasing firms and (c) stable dividend-paying firms. Panel B presents thecorrelation coefficients with regard to the dividend-decreasing firm sample consisting of (b) dividenddecreasing firms and (c). Correlation coefficients in case of adopting AGR or PBR as a variable of
GROWTH in place of SGR are shown on the right side of the dotted lines in both panels.
Focusing on the correlation coefficients among independent variables, we find that some highcorrelation coefficients exceeding ±0.6 exist. In particular, the relationship between ln(MVE) and theownership ratio is interesting. For example, in Panel A, while the correlation coefficient of ln(MVE)and FOREIGN is 0.651, that of ln(MVE) and INDIVIDUAL is –0.589. is result reveals that
foreign investors concentrate on large-sized firms, and contrarily individual investors prefer smallsized firms. It is not difficult to imagine this correlation. Although I collaterally estimated a regression
model excluding ln(MVE) from independent variables because of a concern about multicollinearity,
the major conclusion of this study is unchanged.
Interestingly, the correlation coefficient of FOREIGN and INDIVIDUAL is –0.471, which
is significantly negative. As for the correlation coefficients with ROA, INDIVIDUAL is negative(–0.092) and FOREIGN is positive (0.208). Also with SGR, the correlation coefficient of
INDIVIDUAL is negative (–0.051) and FOREIGN is positive (0.064). ese results conclude that
foreign investors concentrate on firms with high profits and growth,22 and at the time when stock
prices increased to some extent (through their monitoring as well as explicit and implicit pressure
for dividend increases), individual investors sell their stocks. As a result, the significantly negative
correlation between the foreign ownership ratio and the individual ownership ratio has been realized.
Lastly, since the correlation coefficients with dependent variable (incdiv, decdiv) are consistent
with the result of difference test in Table 1, it is not referred again. In any panel, it is characteristicthat the level of correlation coefficients with GROWTH, ROA, and incearn are relatively high.
However, the correlation coefficients just show the correlation between two variables. Consequently,
even if other independent variables are given, it cannot be clarified whether the relationship between
It is necessary to note that the number of dividend-decreasing firm samples is smaller than that of dividend-increasing firm
samples.
21
It can be considered that the reason why firms with a relatively high DOE select dividend decreases is that firms which have room
to decrease dividend (can keep paying some dividends even after dividend decrease) decrease dividend, or book-value of equity(denominator of DOE) of dividend-decreasing firms is relatively small.
22
By focusing on incearn, AGR, and PBR, we can see similar tendencies.
20

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e Japanese Accounting Review, 1 (2011), 39-60

each independent variable and incdiv or decdiv is perceived as expected in the hypothesis, until theestimated result of multivariate regression model of the equation (1) becomes available.

4. Logit Regression Analysis
Table 3 is the estimated result of the equation (1). Panel A is the estimated result of dividendincreasing firms (against stable dividend-paying firms), and panel B is the result of dividenddecreasing firms (against stable dividend-paying firms). Furthermore, (1) – (3) of each panel are
results in case of using SGR, AGR, and PBR as proxy variables of GROWTH. Inequalities in square
brackets under each variable present expected signs of coefficients. Estimated values of coefficientsare on the upper stage of estimated results, and asymptotic t-values modified by White (1980) are inparentheses.
Firstly, according to panel A, it is found that GROWTH (SGR, AGR, PBR), retained earnings
ratio (RE), equity to total assets ratio (TE), profitability (ROA), vector of increasing earnings(incearn), dividend on equity (DOE), share repurchase ratio (REP), and foreign ownership ratio(FOREIGN) are estimated to be statistically significant at the 5% level (two-tailed test, and so forth).
Among them, since RE and TE have the results opposite to the hypotheses, it is difficult to interpretthem.23 e result of REP suggests that dividend-increasing firms are also active in share repurchases.
is fact proves that the substitute hypothesis is not true in Japan.
Other results are consistent with Tables 1 and 2. at is, when growing highly, having highprofitability or high quality investment opportunities, achieving an increase in earnings, having a
low DOE, and a high foreign ownership ratio, firms prefer dividend increases to stable dividend
payments. It is repeatedly suggested that foreign investors may crowd a firm that has high growthand profitability, while leaving DOE at a relatively low level, and that firm is likely to increase
dividends because of those investors’ explicit and implicit pressure for dividend increases.24
Second, according to panel B, for at least one of (1) – (3), it is found that SGR, investment cash
flow ratio (ICF), TE, ROA, incearn, DOE, REP, and FOREIGN are estimated to be statisticallysignificant at the 5% level. Among them, the result of TE cannot be interpreted easily like panel A.
e result of ICF implies that firms with relatively larger investment cash flow decrease dividends.
Although this result is consistent with predictions of the life-cycle theory, as stated before, there is apossibility that failing firms have no choice but to decrease dividends.
Results other than those stated above are consistent with the results in Table 1 and 2, and panel
A of Table 3, and it is easy to interpret them. While having low growth; low profitability or low
quality of investment opportunities; declining earnings; and a high DOE, such firms are likely toprefer dividend decreases to stable dividend payments. Focusing on the little correlation between
decdiv and FOREIGN (panel B in Table 2), we may consider that firms with less pressure fordividend increases decrease dividends.
Finally, we discuss the dividend life-cycle theory. As stated above, the dividend life-cycle theory
suggests that growing firms should choose RE or dividend decreases in preparation for investment for
future growth, rather than for dividend increases. However, Table 3 presents no evidence positively
Especially, the result of TE is not consistent with Table 1, which gained results consistent with the hypothesis. In considerationof the possibility that the numerator of TE becomes the denominator of RE, DOE, and REP, I estimated regression models
excluding those variables, for example. However, the coefficient of TE is almost always estimated to be negative (while sometimes
estimated to be insignificantly positive). is point cannot be interpreted easily, and is a future research.
24
is is just a conjecture based on the result of correlative relationship. e verification of the causal relationship is a future research.
23

(3.323)***(-1.275)-0.002(-0.517)(-1.246)(2.489)*0.046(2.515)*-0.698TE[+]-0.743(-1.179)-0.259(-1.049)-0.228(-1.012)-0.221RE[-](-3.011)**-0.454(1.868)0.553(2.025)*0.581(1.784)

0.517

TE
[-]

(-2.125)*-0.499(-3.894)*** (-3.406)***-0.573(-3.619)*** (-3.229)**-0.534

RE[+](-0.032)-0.017(-0.171)-0.092(-0.398)-0.216CASH[+/-](1.217)0.120(1.092)0.392(1.217)

0.442

CASH
[+/-]
0.414

incearn[+/-]-39.683

DOE
[+/-]
8.895

REP
[+/-]

0.440

-39.804

9.334

0.461

-46.835

9.019-0.281incearn[+/-]
27.946DOE[+/-]-0.32827.298-0.33429.370(-7.971)*** (-3.565)*** (4.578)***-16.014(-7.439)*** (-3.490)** (5.120)***-15.565(-7.503)*** (-2.890)** (5.183)***-14.902

ROA[+/-](-0.995)-4.234(-1.030)-4.411(-1.135)-4.916REP[+/-](7.130)*** (6.967)*** (-8.975)*** (3.711)***

23.129(7.673)*** (6.667)*** (-7.432)*** (3.911)***24.224(7.670)*** (6.131)*** (-7.471)*** (3.721)***23.862

ROA[+/-](-0.240)-0.010(-0.524)-0.020(-0.604)-0.023ln(MVE)[-](-0.491)-0.014(1.165)0.031(1.142)0.030

ln(MVE)[+](-0.264)-0.107(-0.254)-0.101(-0.196)-0.079BANK[-](-0.054)-0.014(-0.283)-0.074(-0.266)-0.069BANK[+](1.456)0.907(1.484)0.919(1.518)0.966

FOREIGN[-](2.402)*1.020(2.456)*1.023(2.482)*

1.035

FOREIGN[+](1.012)0.299(1.075)0.318(1.195)

0.353

INDI
[+/-]

(0.244)0.048(0.097)0.019(0.214)

0.042

INDI
[+/-]

(0.000)229.1(0.000)229.5(0.000)246.5

χ2 value(p-value)(0.000)906.5(0.000)899.2(0.000)907.5

χ2 value(p-value)

0.176

0.176

0.189

R2

0.257

0.255

0.258

R2

*, **, *** Singnificant at the 5%, 1%, and 0.1% levels (two-tailed test), respectivily.
Note: a Inequalities in square brackets under each variable present expected signs of the coefficients. Estimated values of the coefficients are on the upperstage of estimated results, and asymptotic t-values modified by White (1980) are in parentheses. χ2 presents likelihood rate test statistics, and values inparentheses below χ2 present model p-values. e results of annual dummy variables are omitted because of limited space. For details of each variable andsample, see Tables 1 and 2.

-0.072-1.209(3) GROWTH = PBR(-0.935)(-1.176)0.048(2.622)**(-3.849)***-0.6290.049-2.154

GROWTH[+]-1.061(2) GROWTH = AGR(-1.229)-1.097(1) GROWTH = SGRIntercept
[?]

ICF
[+]

(0.074)0.002(-0.072)

Panel B: Dividend-Decreasing Firm Sample

0.283-0.835(3) GROWTH = PBR

1.379(2.916)*(0.253)(2.307)*-1.551

0.006

1.370

(-2.484)*(2) GROWTH = AGR(-2.525)*-1.583(1) GROWTH = SGR

Panel A: Dividend-Increasing Firm Sample
Intercept
GROWTH
ICF
[?]
[-]
[-]

T 3: E R  E (1) aIshikawa: Empirical Analysis on the Dividend Life-Cycle eory49

50

e Japanese Accounting Review, 1 (2011), 39-60

supporting the theory at least. GROWTH has the result opposite to that expected according to
the life-cycle theory.25 Even focusing on other variables that are considered to be related to thedividend life-cycle theory, we find that RE and TE have results opposite to that expected according
to the theory, and the estimated values of coefficients of CASH and ln(MVE) are not statisticallysignificant. While only the result of ICF is consistent with that expected according to the theory, as
shown before, there is scope for other interpretation.
Meanwhile, when a firm with high profitability (ROA) and increasing earnings (incearn) is
considered to be a growing firm, the result of Table 3 is considered to suggest that firms with highgrowth increase dividends. It is much the same for dividend decreases. Firms with low growth(firms with low profitability and growth or with declining earnings) tend to decrease dividends.
Such evidence is the opposite to the dividend life-cycle theory. At least under the research designand samples of this section, positive evidence to affirm the dividend life-cycle theory has not beenobtained.

5. Stock Market’s Valuation of Dividend Increases and Decreases
e results in the previous section prove that high-growing firms increase dividends and lowgrowing firms decrease dividends. is means that the dividend life-cycle theory has not been
accepted by managers of Japanese firms. en, how does the stock market evaluate the dividend
life-cycle theory? In this section, I analyze the stock market’s valuation of dividend increases anddecreases of high-growing firms and low-growing firms.
5.1 Research Design and Sample
In this section, I analyze the stock market’s evaluation of the dividend life-cycle theory by
estimating a regression model of the equation (2) based on Ohlson (2001).
MVEt = a0 + a1 · bt + a2 · xt + a3 · dt-1 + a4 · Δdt+ + a5 · Δdt– + a6 · Et[Δx~t+1]+ a7 · D+ + a8 · D– + a9 · [Dlow_GROWTH × Δdt+] + a10 · [Dhigh_GROWTH × Δdt+]+ a11 · [Dlow_GROWTH × Δdt–] + a12 · [Dhigh_GROWTH × Δdt–](2)+ a13 · [Dlow_GROWTH × D+] + a14 · [Dhigh_GROWTH × D+]+ a15 · [Dlow_GROWTH × D–] + a16 · [Dhigh_GROWTH × D–] + εt.
Based on the Ohlson (2001) model, signs of coefficients of book-value of equity (bt), current
earnings (xt), and earnings growth in the next term (Et[Δx~t+1]) (a1, a2, a6) are expected to be positive.
In the equation (2), points to be considered are as follows. First, while the current dividend(dt) is used in the Ohlson (2001) model, I divide it into dividend in the previous term (dt-1), current
dividend increase (Δdt+), and current dividend decrease (Δdt–) in the equation (2). is is to verify
information contents of dividend changes. In order to facilitate the interpretation of empiricalresults, I convert the current dividend decrease to a positive value by adding an absolute value to it.
According to the Ohlson (2001) model, the expected sign of the coefficient of dt is positive. erefore,
the coefficients of dt-1 and Δdt+ (a3, a4) are expected to be positive, and the coefficient of Δdt– (a5) is
25

Even in the case that samples are limited to firms of which SGR and AGR are 0 or more, the coefficient of GROWTH is not
significantly positive, except (2) in Panel A. In that exception, the coefficient of GROWTH (AGR) is significantly positive at thelevel of 1% (p = 0.005).

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory

51

expected to be negative.
Second, if the dividend increase in the next term is forecasted, the dummy of dividend increasein the next term (D+) is given as 1, otherwise 0.26 e dummy of dividend decreases in the nextterm (D–) is set in a similar manner. e Ohlson (2001) model consists of only book-value of equity,
current earnings, dividends, and earnings growth in the next term. However, the hypothesis set
in developing the Ohlson (2001) model is tightly constrained.27 In fact, there is a high possibility
that other value-relevant information that affects firm value exists. One of these candidates is thedividend forecast for the next term by managers, which is announced at the same time of earnings
announcement. However, there is a multicollinear relationship between dividends in the nextterm and the current dividends. erefore, the dummy of changes in dividends is reflected on the
regression model. Further, even given the current earnings and the earnings growth in the next
term, if dividend increases in the next term (dividend decreases in the next term) are additionallyappreciated as managers’ highly reliable private information on future expansion (decline) in earnings,
the coefficients of D+ and D– (a7, a8) are expected to be positive and negative, respectively.28
ird, GROWTH appearing in from the ninth to sixteenth independent variables (excludingintercept) represents three patterns of proxy variables related to growing stages (price to book-value
ratio (PBR), sales growth ratio (SGR), and ratio of ordinary income to sales (MARGIN)29). For
example, in case of using PBR as GROWTH, Dlow_growth × Δdt+ presents the interaction term obtainedby multiplying Δdt+ by the dummy (low PBR dummy) to be given as 1 if falling into the lower 10%(per fiscal year) of PBR [=total market value at the end of June (stock price at the end of June, threemonths after the closing date × total number of shares issued at the end of term)/book-value ofequity at the end of term], otherwise 0. Contrarily, Dhigh_growth is a dummy to be given as 1 if falling
into the upper 10% (per fiscal year) of the PBR, otherwise 0.30 It is much the same in case of using
SGR and MARGIN, but samples are limited to firm-years with values of those scales at 0 or more.31
As stated above, in cases where the market evaluates changes in dividends in a manner consistent
with the life-cycle theory, the coefficient of mature firms’ dividend increases (a9, a13) is expected to bepositive, the coefficient of growing firms’ dividend increases (a10, a14) is expected to be negative, thecoefficient of mature firms’ dividend decreases (a11, a15) is expected to be negative, and the coefficientof growing firms’ dividend decreases (a12, a16) is expected to be positive.
Fourth, as factors other than opportunities for GROW TH, which influence themarket’s evaluation of changes in dividends, a vector of changes in earnings, excess funds, anda capital structure are controlled. To be more specific, 24 types of interaction terms obtained bymultiplying dividend increases and decreases (Δdt+, Δdt–, D+, D–) by the following dummies are added:
As the dividend forecast for the next term (and all other estimated values for the next term), the forecast for the next term bymanagers is used. Almost every Japanese firm announces management forecasts for the next term, which are announced at thesame time of the annual earnings announcement. D+ and D- are judged using the change in dividend per share in the next term.
To ease effects from actual dividend increases due to stock split, etc., samples are limited to firm-years with a change in total
numbers of stocks issued from the current term to the next term less than ±20%.
27
For example, the rational expectation hypothesis of linear information dynamics (LID) that “other information” can becomprehended only with the forecasted abnormal earnings in the next term and the current abnormal earnings (see Ohlson (1995)).
28
is hypothesis is based on the signaling theory. Furthermore, under the free cash flow theory, the announcement of forecasted
dividend increases (decreases) is considered to have positive (negative) impacts on stock prices through the expectation of areduction (increase) in agency costs.
29
MARGIN is positioned as a proxy variable presenting quality of investment opportunities.
30
Even in case of setting dummy variables at the lower and upper 20% of the PBR, I obtained almost similar results (the same forother interaction terms).
31
Because there is a high possibility that mature and declining firms are included in firms with negative values of these scales.
Meanwhile, as for the PB ratio, it is difficult to set threshold of mature and declining firms.
26

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e Japanese Accounting Review, 1 (2011), 39-60

increasing earnings dummy (Dinc_earnings), decreasing earnings dummy (Ddec_earnings), low liquidity on
hand ratio dummy (D low_cash), high liquidity on hand dummy (Dhigh_cash), low equity to total assets
ratio dummy (Dlow_equity), and high equity to total assets dummy (Dhigh_equity).32 For example, a signal of
dividend increases at the time of an increase in earnings may be more appreciated because manager’s
confidence in future good performance is supported by the increase in earnings (corroboration effect,
Kane et al. 1984). In addition, dividend increases by firms with abundant excess funds are considered
to have positive impacts on stock prices through an effective reduction in agency costs (the free cash
flow theory, Jensen 1986). Furthermore, when firms with excessively abundant equity capital increase
dividends, the effect of increasing ROE is likely to create a favorable impression. Meanwhile, whenfirms with poor funds or excessively low equity increase dividends, the market may concern further
deterioration of their financial conditions (the financial condition theory).33
Fifth, considering the fact that Japanese firms with the fiscal year ending in March, which
are analyzed in this section, are used to announce the consolidated financial statements by the endof June, the total market value of equity (MVEt) as a dependent variable is computed using stock
prices at the end of June. To mitigate heteroscedasticity, each variable other than dummy variables
is deflated with the total market value at the end of June in the previous year (MVEt-1). Sixth, year
dummies and β value are added to control fluctuations in stock prices according to time-serieschanges in general economic conditions varying by fiscal years as well as discount rates varying by thefirm. Seventh, outliers in the upper and lower 0.5% are excluded for each fiscal year and variable (except
dummy variables). However, all of dividends have positire values, outliers only in the upper 0.5% are
excluded for dividends.
After adding some more requirements,34 samples include 18,489 firm-years ending in March,from 1994 (1,061 firms) to 2007 (1,648 firms). In case of using SGR and MARGIN as GROWTH,
samples are limited to firms with these values at 0 or more, and the numbers of samples are 11,530
and 17,205, respectively. Data of stock prices was extracted from Stock Price CD-ROM (Toyo Keizai,Inc.), financial data and managers’ forecast data (consolidated data used, in principle) from Nikkei
NEEDS Financial Quest (Nikkei Media Marketing, Inc.), and β value from Nikkei NEEDS stock
price/index data CD-ROM (Nikkei Media Marketing, Inc.).
5.2 Market’s Evaluation of the Dividend Life-Cycle eory
Table 4 is the estimated result of the equation (2).35 Consistent with the hypotheses, coefficientsof Δdt+ and D+ (a4, a7) are estimated to be significantly positive at the 5% level (two-tailed test),
whereas those of Δdt– and D– (a5, a8) are estimated to be significantly negative. ese results suggest
that, even given other value-relevant data, dividend increases (decreases) in the current and next
terms are generally evaluated as an additional positive (negative) signal and are consistent with theresults in the US market (Pettit 1972; Charest 1978; Aharony and Swary 1980; Asquith and Mullins
For simplification, these variables are omitted in the equation (2). See note in Table 4 for details of definition of variables.
When firms with increases (decreases) in earnings, those with low (high) liquidity on hand, and those with low (high) equity tototal assets ratio are suggested to be growing (mature) firms, it is possible to set the same hypothetical signs based on the life-cycle
theory.
34
Apart from the requirements stated above, it is required that the firm be one with the fiscal year ending in March; not to change
its accounting period in the previous, current, and next year; to have positive consolidated and non-consolidated equity in thecurrent term; have the closing stock price at the end of June in each fiscal year, including the previous year; keep the face valueof stock (former face value conversion) at 50 yen in the previous, current, and next term; and not to have had a period in which
dividends were not paid for three straight fiscal terms. Since I am analyzing changes in dividends in this section, I impose the lastrequirement.
35
Tables of basic statistic and correlation coefficients are omitted because of limited space. Focusing on correlation coefficients
between independent variables, we find that the correlation coefficient of the current earnings (xt) and changes in earnings in thenext term (Et[Δx~t+1]) is –0.818, and we are worring about multicollinearity. erefore, in this section, I supplementarily estimate aregression model excluding any one of xt and Et[Δx~t+1]. However, the major conclusion in this section is unchanged.
32
33

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory

53

1983; Bajaj and Vijh 1990; Michaely et al. 1995).
Now, how is the positive (negative) correlation between dividend increases (decreases) andstock prices associated with the firm’s growing stages? In case of using the PBR as GROWTH, forexample, it is found that the coefficient of a mature firm’s dividend decreases (a11, a15) are estimatedto be significantly negative, whereas the coefficient of a growing firm’s dividend decreases (a12, a16)
are estimated to be significantly positive. ese results are consistent with the prediction by thedividend life-cycle theory. In this case, it is considered that the market depreciates a mature firm’s
dividend decreases, which may further worsen free cash flow issues, while also depreciating a growing
firm’s dividend decreases less than the usual decreases, considering them to be preparations for future
investment.
On the other hand, dividend increases have a result completely opposite to that predicted by
the life-cycle theory. e coefficient of a mature firm’s dividend increases (a9, a13) are estimated tobe significantly negative, whereas the coefficient of a growing firm’s dividend increases (a10, a14) are
estimated to be significantly positive.36 is result suggests that the positive correlation between
dividend increases and stock prices is stronger in growing firms and weaker in mature firms. How canthese results be interpreted?
Kane et al. (1984) discovered the fact that announcements of changes in earnings anddividends are evaluated in conjunction with each other. For example, dividend increases at the timeof an increase in earnings are more appreciated than at the time of a decrease in earnings.37 is iscalled “corroboration effect.” However, factors that additionally cause an increase in stock prices incorroboration of the announcement of dividend increases do not only include a direct performancefactor such as an increase in earnings. Dividend increases represent a manager’s confidence in good
performance in future. Indices such as a high PBR and a high SGR can be considered as signals
supporting it from different viewpoints. When both signals have the same vector, the dividend
increase is considered highly reliable and more preferable. On the contrary, dividend increases withdifferent vectors (that is low PBR and low SGR) is less effective in increasing stock prices.
We can also uniformly interpret the abovementioned result of dividend decreases using
the concept of this corroboration effect. e reason why a dividend decrease by a mature firm isadditionally depreciated is that a signal meaning “we are the mature (low-growing) company” has thesame vector as a signal of a dividend decrease. On the contrary, the coefficient of dividend decreases
by growing firms is estimated to be significantly positive because both vectors contradict each other.
While the dividend decrease with the same vector causes stock prices to fall predominantly, the drop
in stock prices due to dividend decreases with a different vector is limited.
5.3 Results of Control Variables
With regard to the relationship with the vector of changes in earnings, it is notable that boththe coefficient of dividend increases by firms with increasing earnings (a17, a21) and that of dividend
decreases by them (a23) are almost estimated to be significantly positive. When a firm with increasing
earnings is defined as a growing firm, the latter result can be explained with the dividend life-cycle
theory, but the former one cannot. However, both results can be interpreted consistently using theconcept of the corroboration effect. e dividend increase with the same vector as increasing earnings
is further appreciated as a highly reliable signal. In contrast, changes in dividends with different
36
37

In the case of using SGR and MARGIN, this point is baAsically much the same.
Also see Chang and Chen (1991), Easton (1991), and Cheng and Leung (2006).

e Japanese Accounting Review, 1 (2011), 39-60

54

T 4: E R  E (2) a

(1) b
(2) b
(3) b
(4) b
(5) b
(6) b
(7) b
(8) b
(9) c
(10) c(11) c(12) c(13) c(14) c(15) c(16) c(17) d(18) d(19) d(20) d(21) d(22) d(23) dvariables

coef.

intercept
bt
xt
dt-1
∆dt+
∆dtEt[∆x~t+1]
D+
DDlow_GROWTH·∆dt+
Dhigh_GROWTH·∆dt+
Dlow_GROWTH·∆dtDhigh_GROWTH·∆dtDlow_GROWTH·D+
Dhigh_GROWTH·D+
Dlow_GROWTH·DDhigh_GROWTH·D-

a0
a1
a2
a3
a4
a5
a6
a7
a8
a9
a10
a11
a12
a13
a14
a15

(24) dDinc_eamings·∆dt+
Ddec_eamings·∆dt+
Dinc_eamings·∆dtDdec_eamings·∆dtDinc_eamings·D+
Ddec_eamings·D+
Dinc_eamings·DDdec_eamings·D-(33) dDlow_equity·∆dt+(25) d(26) d(27) d(28) d(29) d(30) d(31) d(32) dDlow_cash·∆dt+
Dhigh_cash·∆dt+
Dlow_cash·∆dtDhigh_cash·∆dtDlow_cash·D+
Dhigh_cash·D+
Dlow_cash·DDhigh_cash·D-(34) d(35) d(36) d(37) d(38) d(39) d(40) dDhigh_equity·∆dt+
Dlow_equity·∆dtDhigh_equity·∆dtDlow_equity·D+
Dhigh_equity·D+
Dlow_equity·DDhigh_equity·Dadj. R2

a16
a17
a18
a19
a20
a21
a22
a23
a24
a25
a26
a27
a28
a29
a30
a31
a32
a33
a34
a35
a36
a37
a38
a39
a40

expected sign

lifecycle

+
–
–
+
+
–
–

0
+
+
+
+
+
+
–

+

GROWTH (9) ~ (16)SGR
est_coef.
t-value
0.946
62.454 ***0.035
4.761 ***
3.089
20.493 ***2.308
3.803 ***
9.830
6.113 ***
-5.531-2.874 **2.982
17.063 ***0.034
2.229 *
-0.069-5.162 ***-10.407-4.495 ***7.449
2.512 *
-2.856-0.950-4.535-0.938-0.040-1.844
0.020
0.770
0.014
0.502

MARGIN
est_coef.
t-value
0.932
92.272 ***0.033
6.163 ***
2.891
25.696 ***1.897
4.160 ***
10.2577.518 ***
-7.839-5.649 ***2.666
21.193 ***0.034
2.837 **
-0.071-6.817 ***-3.937-1.9218.421
2.368 *
1.764
0.984
4.200
0.676
-0.037-1.6550.097
3.855 ***
0.001
0.034

+
–
+
–
+
–
+

6.344
-3.179
3.053
3.202
0.040
-0.0950.065

3.708 ***
-0.7882.011 *
0.995
3.274 **
-3.615 ***4.279 ***

8.078
0.933
3.550
0.741
0.068
-0.0940.092

4.208 ***
0.164
1.385
0.111
4.329 ***
-2.674 **4.843 ***

8.364
-6.5762.689-6.2400.064-0.0590.091

5.007 ***
-1.5301.374-1.6574.765 ***
-2.039 *5.426 ***

0.078
2.447
2.481
-2.256-0.019-0.005-0.012

0.033
0.710
1.348
-0.838-1.069-0.219-0.577-5.6776.994
7.856-4.486-0.0200.039-0.025-2.098 *1.437
2.101 *
-0.806-0.8591.472-0.858-0.7383.232
5.407-1.756-0.0320.003-0.022-0.3400.844
2.127 *
-0.518-1.6320.134-0.877-5.545 ***-6.461-2.459 *

+

–
?
+
?
–
?
+
?

–
+
–
+
–
+
–

PBR
est_coef.
t-value
0.927
99.338 ***0.083
15.529 ***2.553
24.457 ***1.379
3.253 **
10.5147.608 ***
-5.195-5.277 ***2.386
20.958 ***0.032
2.971 **
-0.060-6.415 ***-16.165-7.038 ***31.326
7.007 ***
-6.743-4.002 ***10.0612.632 *
-0.145-8.266 ***0.212
9.227 ***
-0.090-5.042 ***corroboration

–
+
+
–
–
+
+
–
–
+
+
–
–
+
+
–

–

0.219

-0.001-0.037-11.6612.550-1.4363.291-0.030-0.017-0.0140.043

6.175 ***

-0.052-1.6860.910-0.9551.253-1.722-0.802-0.495
0.525

1.848

-0.0290.007-0.033-0.6800.053-4.0100.001-0.028-0.0270.059-0.8790.216-1.102-0.1910.019-0.8500.048-1.059-0.620
0.506

1.800

0.084

-0.006-0.038-7.765-1.467
0.408
5.889
0.010
-0.0470.027
0.029

2.804 **

-0.336-1.644-3.900 ***-0.423
0.195
1.628
0.539
-1.966 *
0.850
0.498

1.024

*, **, *** Significant at the 5%, 1%, and 0.1% levels (two-tailed test), respectively.
Note: a An expected sign represents a hypothesis regarding a sign of a coefficient. t-values are basedon White (1980)’s heteroskedasticity- consistent standard errors. Samples include 18,489 firm-years
respectively ending in March, from 1994 to 2007, which meet specific requirements.
MVEt is market value of equity at the end of June (stock price at the end of June, three months after theclosing date × total number of shares issued at the end of term). bt is the book-value of equity at the endof the current term, and xt is the current earnings. e current dividend (dt) is divided into dividend in
the previous term (dt-1) and the chage in current dividend. Furthermore, the change in current dividend isdivided into current dividend increases (∆dt+) and current dividend decreases (∆dt−) (the current dividend
decrease is converted to an absolute value). e change in earnings in the next term (Et(x~t+1)) is earnings
forecast for the next term minus current net income. e management forecast of earnings for the next
(Continued)bIshikawa: Empirical Analysis on the Dividend Life-Cycle eory

55(-Continued)
term, which is announced at the same time of the annual earnings announcement, is used as the earnings
forecast for the next term. A dummy of dividend increase in the next term (D+) is given 1 in case of
forecasting a dividend increase in the next term, otherwise 0. A dummy of dividend decrease in the nextterm (D−) is given 1 in case of forecasting a dividend decrease in the next term, otherwise 0. e dividend
increases and decreases in the next term are judged with a sign of [management forecast of dividend for the
next term − current dividend] (per share). e management forecast of dividend per share is also announced
at the same time of the annual earnings announcement. I generally use consolidated data. If there is no
consolidated data, non-consolidated data (parent-only data) is used as a substitute for it. Each variable isdivided by market value of equity at the end of June in the previous year, and data after eliminating outliersin the upper and lower 0.5% (upper 0.5% for dividend) for each fiscal year is used. Control variables (βvalue estimated using a firm’s rate of return minus market return (TOPIX) for 60 months ending by theend of June in the current year and year dummies) are inclued but omitted for simplicity.
GROWTH of (9)-(16) represent three patterns of proxy variables with regard to growing stages (priceto book-value ratio (PBR), sales growth ratio (SGR), ratio of ordinary income to sales (MARGIN)). For
example, in case of using the PBR as growth, Dlow_BROWTH × ∆dt+ represents the interaction term obtainedby multiplying ∆dt+ by the low PBR dummy to be given 1 if falling into the lower 10% (per fiscal year) of[market value of equity at the end of June (stock price at the end of June, three months after the closing
date × total number of shares issued at the end of term)/book value of equity at the end of term], otherwise
0. On the contrary, Dhigh_GROWTH is a dummy to be given 1 if falling into the upper 10% (per fiscal year)of the PBR, otherwise 0. In case of using SGR and MARGIN as GROWTH, samples are limited tothose with values of these scales at 0 or more (n =11,530, 17,205), and the same dummy as the PBR statedabove is set. e dummy of SGR to be multiplied ∆dt+ and ∆dt- is set based on [(current sales − sales in
the previous year)/sales in the previous year], and the dummy of MARGIN based on [current ordinary
income/current sales]. Meanwhile, the dummy of SGR to be multiplied D+ and D- is set based on [(sales
forecast for the next term − current sales)/current sales], and the dummy of MARGIN is set based on[ordinary income forecast for the next term/sales forecast for the next term] (the forecasts by managers forthe next term are also used, which is announced at the same time of earnings announcement).
c

Dinc_earnings of (17)-(24) represents the dummy to which 1 is given if the current earnings increase andearning increases in the next term are forecasted, otherwise 0 (earning increase dummy). Ddec_earnings
represents the dummy to which 1 is given if the current earnings decrease and earning decreases in the nextterm are forecasted, otherwise 0 (earning decrease dummy) (on net income basis). Dlow_cash to be multiplied∆dt+ and ∆dt- of (25)–(32) is the dummy to which 1 is given if falling into the lower 10% (each fiscal year)of [liquidity on hand (cash and securities) at the end of the previous term/total assets at the end of theprevious term], otherwise 0 (dummy of low liquidity on hand ratio). Dhigh_cash is the dummy to which
1 is given if falling into the upper 10% (each fiscal year) of the liquidity on hand ratio, otherwise 0. edummy of liquidity on hand ratio to be multiplied D+ and D- is set based on [liquidity on hand at the endof current term/total assets at the end of current term]. Dlow_equity to be multiplied ∆dt+ and ∆dt- of (33)–(40)is the dummy to which 1 is given if falling into the lower 10% (each fiscal year) of [book-value of equity
at the end of the previous term/total assets at the end of the previous term], otherwise 0 (dummy of low
TE). Dhigh_equity is the dummy to which 1 is given if falling into the upper 10% (each fiscal year) of the TE,
otherwise 0. e dummy of TE to be multiplied D+ and D- is set based on [book-value of equity at the endof current term/total assets at the end of current term].
dvectors are discounted.38
Next, with regard to the relationship with excess funds, since the significance level varies
depending on which variable is adopted as GROWTH, it cannot be considered robust evidence.
Meanwhile, in the relationship with the capital structure, it is notable that the coefficient of dividend
increases by firms with a low TE (a33) is estimated to be significantly negative at the 5% level at least.
When such firms are defined as growing firms, this result can be considered consistent with thatpredicted by the life-cycle theory. However, it can be also considered that the market will worry aboutfurther deterioration of financial conditions when a firm with excessively low TE (firms with poor38

e coefficient of dividend decreases by firms with decreasing earnings (a20) is estimated to be negative (while the significance levelis low) in case of using MARGIN, and the coefficient of dividend increases by firms with decreasing earnings (a22) is estimatedto be significantly negative in any case. ese facts are consistent with the forecast of the hypothesis based on the corroboration
effect.

56

e Japanese Accounting Review, 1 (2011), 39-60

financial conditions) increases dividends (the financial condition theory).39

6. Additional Analysis
In the fifth section, we find that dividend increases by growing firms are more appreciated,but those by mature firms are less appreciated. On the other hand, while dividend decreases bymature firms are additionally depreciated, but those by growing firms are less depreciated. e resultof dividend decreases is consistent with the prediction by the dividend life-cycle theory. But thetheory can not explain the result of dividend increases. In that regard, when using the concept ofcorroboration effect, we can consistently interpret the above mixed results. In this section, to clarify
why we got the above relationship between change in dividends and stock prices, I verify the abilityof dividends to predict future earnings.
Figure 1 compares the time-series of ROE (median40)41 of dividend-increasing and decreasing
firms for total five fiscal terms before and after the term (–2 <_ t <_ 2) with those of control firms (stabledividend-paying firms). e relevant fiscal term of firms that changed dividends (dividend-increasing
firm and dividend-decreasing firm) are defined as [ t = 0 ]. Samples are common to the third section(898 dividend-increasing firms, 196 dividend-decreasing firms, and 1,917 stable dividend-paying
firms).
According to this figure, firms with permanent and significantly high ROE increase dividends (atthe 5% level, two-tailed test, and so forth).42 Compared with the previous term, in general, ROE ofdividend-increasing firms significantly increases every fiscal term. Time series of ROE of dividendincreasing firms in and after the next term supports the signaling theory strongly, at least, regarding
dividend increases. is finding contrasts with the result of Grullon et al. (2002) analyzing the US
market.43 Meanwhile, ROE of dividend-decreasing firms is significantly lower than that of stabledividend-paying firms only in the current and next terms.44 However, after significantly falling in
the current term, ROE of dividend-decreasing firms show a significant upward tendency in the next
term, and still sharply rise in the term after the next term.45 Two years later, the significant difference
from stable dividend-paying firms is disappeared.
Figure 1 shows that dividend increasing firms actually experience good performance in future.
In this section, I conducted additional tests in the following conditions, and the empirical results regarding interaction terms of
GROWTH are generally robust. (1) A case of limiting samples to firms with their fiscal year ending in March during the period
from 2005 to 2007 when a number of firms increased dividends. (2) A case including a interaction terms obtained by multiplying
dividends in the previous term and changes in earnings in the next term by a GROWTH dummy in dependent variables. (Since
the correlation coefficient of interaction terms of equity and dividends in the previous term, and the correlation coefficientof interaction terms of the current earnings and changes in earnings in the next term are high, the former interaction term isrespectively excluded.) (3) A case of limiting samples to firms with the PBR at 1 or over when adopting that ratio as GROWTH. (4)A case of eliminating interaction terms regarding vectors of changes in earnings, which contain data similar to GROWTH. (5) Acase of using a mean value of SGR (over the past three years) or AGR (0 or over) as GROWTH. (6) A case of using net financial
assets (= liquidity on hand –debt with interest) as a proxy variable of excess funds in place of liquidity on hand. (7) A case of using
the retained earnings ratio (=retained earnings/book-value of equity) in place of liquidity on hand or the equity capital ratio.
40
By using ROA or average, we can see similar results. See Ishikawa (2010).
41
Figures 1-3 present the simple average of results of each fiscal year ending in March, from 2002 to 2005.
42
I examine differences in the median of ROE between dividend-increasing (decreasing) firms and stable dividend-paying firms byfiscal term. e Mann-Whitney test with independent samples is used to examine differences in median. In addition, I examine
differences in median of the time-series of ROE of dividend-increasing firms (dividend-decreasing firm, stable dividend payment)
themselves. e Wilcoxon signed-rank test with related samples is used to examine differences in median.
43
is finding is robust even if using ROA that Grullon et al. (2002) uses.
44
But as for the next term, the level of significance is merely 10%.
45
is tendency on dividend-decreasing sample is consistent with Grullon et al. (2002).
39

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eoryF 1: ROE ( ) a

0.08

0.06

0.04

0.02

0.00
-2

-1

0

1

2

fiscal term
Dividend-increasing firm
Dividend-decreasing firm
Stable dividend-paying firm

Note: a ROE = current net earnings/average book-value of equity.
e relevant fiscal term that firms increase or decrease dividends
isdefined as [t = 0]. Samples are common to Table 1.

F 2: ROE (PBR ) a

0.12
0.10
0.08
0.06
0.04
0.02
0.00

-2

-1

0

1

2

fiscal term

Dividend-increasing & PBR upper 1/3 firm
Dividend-increasing & PBR lower 1/3 firm
Dividend-decreasing & PBR upper 1/3 firm
Dividend-decreasing & PBR lower 1/3 firm

Note: a a ROE = current net earnings/average bookvalue of equity. e relevant fiscal term that firms increase or decrease dividends is defined as [t = 0]. For
example, dividend-increasing & PBR upper 1/3 firm
is dividend-increasing firm falling into the upper 1/3
of PBR out of Figure 1.

F 3: ROE (SGR ) a�����������
������
������
������
������
������
����

����

���

���

���

�����������

����������������������������������������������������
����������������������������������������������������
����������������������������������������������������
����������������������������������������������������

Note: a ROE = current net earnings/average bookvalue of equity. e relevant fiscal term that firms
increase or decrease dividends is defined as [t = 0].
For example, dividend-increasing & SGR (0 or more)
upper 1/3 firm is dividend-increasing firm falling into
the upper 1/3 of SGR (0 or more) out of Figure 1.

57

58

e Japanese Accounting Review, 1 (2011), 39-60

Dividend decreasing firms also suffer bad performance at least in the next term. en, do those
dividend increasing (decreasing) firms supported by growing (maturity) achieve better (worse)
performance? Figure 2 shows the time-series of ROE (median) of dividend-increasing and decreasing
firms falling into the upper and lower 1/3 of PBR (per fiscal year). Figure 3 is the result using SGR.
Regardless of using PBR or SGR as a growth variable, ROE of dividend increasing & growing
firms is significantly higher than that of dividend increasing & mature firms in and after the current
term. Also, as far as we look at Figure 2, ROE of dividend decreasing & mature firms is lower thanthat of dividend decreasing & growing firms in and after the current term. Dividend increasing(decreasing) firms corroborated by growing (maturity) actually experience better (worse) performancein future.46 is is the reason why the market additionally appreciates dividend increases by growing
firms and penalizes dividend decreases by mature firms. ese results are consistent with the
implication of corroboration effect.

7. Summary and Conclusion
Hanaeda and Serita (2008) sent questionnaires to firms in May 2006 and collected them by theend of June 2006. en, they conducted the survey on ideas of Japanese firms to formulate the payout
policy by analyzing 629 firms that responded to their questionnaires and met certain requirements.
In response to the question “Is it acceptable for you to decrease dividends if you need funds toimplement necessary investment projects?,” 24.2% answered Yes, and 46.1% answered No. 47 In
response to the question directly related to the dividend life-cycle theory, “Is there a possibility that
dividend increases are regarded by investors as the evidence that your firm does not have so many
investment opportunities?”, 12.1% answered Yes and 45.5% answered No. ese results suggest thepossibility that the life-cycle theory has not been accepted by Japanese firms as dividends are not46

is finding is supported by the below estimated results using the same sample as the third section (t-values based on White(1980)’s heteroskedasticity-consistent standard errors are in parentheses).
(1) ΔROEt+1 = 0.019– 0.743 · ΔROEt – 0.591 · ROEt-1 + 0.884 · ΔDOE+t(6.770)*** (−12.817)***(−11.520)***(2.277)*– 1.662 · ΔDOE-t– 5.245 · Dlow_GROWTH · ΔDOE+t + 4.871 · Dhigh_GROWTH · ΔDOE+t(– 1.300)(–2.238)*(4.992)***–4.721 · Dlow_GROWTH · ΔDOE-t – 13.056 · Dhigh_GROWTH · ΔDOE-t.
(– 2.098)*(– 2.048)*
adj.R2 = 0.280. (in case of using PBR as GROWTH)(2) ΔROEt+1 = 0.019– 0.747 · ΔROEt – 0.586 · ROEt-1 + 1.409 · ΔDOE+t(5.169)*** (−11.232)***(−10.583)***(1.998)*– 6.748 · ΔDOE-t – 1.758 · Dlow_GROWTH · ΔDOE+t + 3.462 · Dhigh_GROWTH · ΔDOE+t(– 1.416)(–2.361)*(3.072)**+ 5.102 · Dlow_GROWTH · ΔDOE-t +0.098 · Dhigh_GROWTH · ΔDOE-t.
(1.083)(0.019)adj.R2 = 0.260. (in case of using SGR as GROWTH).
e coefficient of ΔDOE+t (ΔDOE-t) is estimated to be significantly positive (negative, but the level of significance is low)
(ΔDOE-t is converted to a positive value by adding an absolute value to it). is means that change in dividend in the current term
has an ability to predict change in earnings in the next term. Moreover, the coefficient of an interaction term, that is Dhigh_GROWTH· ΔDOE+t (Dlow_GROWTH · ΔDOE-t) is estimated to be significantly positive (negative, in case of (1)). is result shows that thedividend increases (decreases) corroborated by growing (maturity) has an additional earnings increases (decreases) predictability,
consistent with the implication of corroboration effect.
47
is result is consistent with the fact that 84.3% of the firms answered that it is important to not lower the amount of dividend
per share (4.5% answered No). It suggests the downward rigidity of dividends and the significance of dividends to Japanese firms.
For information on surveys in US, see Brav et al. (2005).

Ishikawa: Empirical Analysis on the Dividend Life-Cycle eory59

influenced by the status of investment opportunities.
e empirical result of this study supports the result of the survey research shown above. In
the fourth section, we did not obtain the result that mature firms select more dividend increases
than growing firms. If assuming that ROA is a proxy variable representing the quality of investment
opportunities or defining a firm with increasing earnings as a growing firm, I obtain the opposite
result that growing firms select more dividend increases. e fifth section presents the evidence thatwhile these dividend increases by growing firms are more highly appreciated than those by others,
dividend increases by mature firms are less appreciated. ese findings are not consistent with theprediction by the dividend life-cycle theory, but can be interpreted using the concept of corroboration
effect.
Dividend increases represent a manager’s confidence in good performance in future. Indices suchas a high PBR and a high SGR can be considered as signals supporting it from different viewpoints.
When both signals have the same vector, the dividend increase is considered highly reliable and more
preferable. On the contrary, dividend increases with different vectors is less effective in increasing
stock prices. In fact, the sixth section presents the evidence that profitability of dividend-increasing
firms supported by high growing is actually more improving in and after the next term than that withdifferent vectors. In Japan, dividend increases by highly growing firms become a highly reliable signal
with regard to the improvement in future profitability. is is the reason why dividend increases byhighly growing firms are additionally appreciated.
e dividend life-cycle theory has not been accepted by Japanese firms and markets, at least
under the research design and samples in this study. But this result does not suggest that growing
firms should increase dividends at a cost of investment. If investment is sacrificed, earnings will
decrease in future. As a result, it is apparent that the firm value itself will deteriorate. In that case,scales of growth such as PBR and SGR, etc. are also likely to deteriorate. A firm that sacrifices
investment for future growth cannot be called a growing firm any more. With the evidence shown
here, we should consider that dividend increases after securing investment for growth are additionallyappreciated.

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BAJAJ, M., AND A. M. VIJH. 1990. Dividend clienteles and the information content of dividend changes. Journal of Financial
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