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Dividend Policy in South Africa: A survey of financial directors of JSE listed companies

Dividend Policy in South Africa: A survey of financial directors of JSE listed companies. Eran Brill Cohesive Capital Francois Toerien University of Cape Town. Outline. Background Prior Research Objective of the study Methodology Local and International issues Results Conclusion

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Dividend Policy in South Africa: A survey of financial directors of JSE listed companies

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  1. Dividend Policy in South Africa: A survey of financial directors of JSE listed companies Eran Brill Cohesive Capital Francois Toerien University of Cape Town

  2. Outline • Background • Prior Research • Objective of the study • Methodology • Local and International issues • Results • Conclusion • Future research • Discussion

  3. Background • Modular MBA student in the class of 2010/2011 • Work in asset management at Cohesive Capital • Regularly attend company results presentation and have meetings with JSE listed company financial directors • Topic was generated from a class discussion with Prof. Colin Firer in 2010 • Research supervised by Dr. Francois Toerien in 2011

  4. Prior Research • Brav, Graham, Harvey & Michaely (2003) • Developed a comprehensive survey based on a large pool of prior work on dividends • 384 financial executives completed the survey • Firer, Gilbert & Maytham (2008) • Adapted the Brav et al. (2003) survey to the South African market • 46 directors completed the survey

  5. Objective of the Study • Objective to develop the understanding of the factors relevant to the payout decision. • Major potential significance to the academic and investment fields. • Aim to be the largest and most comprehensive dividend study in South Africa

  6. Methodology • Online survey vs. printable survey • Phone call and personalised email to every applicable JSE listed company via personal assistant of the financial director • Completed surveys aggregated and analysed

  7. Local and International issues • The global financial crisis • Secondary tax on companies • Black economic empowerment (BEE) • Offshore shareholders • The new Companies Act • Exchange control regulations

  8. Results • Stability of future earnings most important • Availability of investment opportunities important • Merger & acquisition strategy important, however less so in times of uncertainty • Having extra cash relative to the desired cash holdings important • Negative consequences to reducing dividends

  9. Results – 2011 vs. 2006 • Best alternative to paying dividends • 2011: reduction of debt (even though interest rates low) • 2006: increased investment (even though interest rates high) • Merger & acquisition strategy • 2011: not very important factor • 2006: very important factor

  10. Conclusion • Results confirm Lintner’s 1956 findings that dividends are tied to long-term sustainable earnings; and that managers do target long-term payout ratios • The availability of good investment opportunities is of great importance to financial directors • Historic dividend policy and information content implicit in dividend payments are very important to the payout decision • The global financial crisis has caused financial directors to be more cautious with decisions

  11. Future Research • Four part series • Part 1 – Financial directors • Part 2 – Retail investors • Part 3 – Institutional investors • Part 4 – Foreign investors

  12. Discussion • Background • Prior Research • Objective of the study • Methodology • Local and International issues • Results • Conclusion • Future research

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