Payout Policy in Taiwan : Cash Dividends, Stock Repurchases and Capital Reduction

Taiwanese firms sometimes make stock repurchases or reduce capital as alternative forms of paying earnings in place of distributing cash dividends. Yet, distributing dividends is still the dominant payout form. In addition, we find some impressive evidence on Taiwan market. First, both the number of payout firms and the aggregate amount of payout value stably and significantly increase. Second, both earnings and payouts are highly concentrated among the largest firms. Third, payout firms are characterized by high profitability, large size and lower leverage, while no evidence of low growth is found among these firms. Forth, payout firms have significantly higher retained earnings to equity ratio, supporting the life-cycle theory of DeAngelo, DeAngelo and Stulz (2006). Fifth, firms making repurchases without distributing dividends seem to be less mature with lower retained earnings to equity ratio. Finally, firms reducing capital through repurchasing in the market are less mature than firms doing it through distributing cash to the shareholders. Hence, the last two findings provide further support for the life-cycle theory