This paper examines the conditions and variables that predict preferences for treasury stock and cash dividends in a contractionary market. While this is a highly debated topic, this study contributes to the literature primarily through its innovative research design. The study investigates corporate payout policy in a suppressed market, which is different from virtually all other studies that have been made. In addition, the study is innovative because it isolates firm specific variables by dividing firms into size and style, according to Morningstar.com's style matrix. The study finds, consistent with most research, that treasury stock transactions are positively correlated with cash flows. However, the paper also finds that cash dividends are negatively related to the performance of the market. This is new and unexpected and suggests that investors prefer cash dividends, a more secure transfer of wealth than the appreciation of stock, which may simply get lost in a suppressed market.
Bibliography : pages 67-69