A Test of Dividend Policy: The Case of the Japanese Machinery Industry Firms

Abstract

This paper comprehensively explores the determinants of the dividend policy of the Japanese machinery industry corporations. First, our empirical examinations clarify that in this industry, corporate managers do not cater to investors' dividend demand in both their dividend initiation and continuation decisions. Instead, in the Japanese machinery industry, the significant determinants of firms' dividend initiations are value-weighted payers' and nonpayers' market-to-book ratio, value-weighted all companies' dividend yields, value-weighted nonpayers' size, and nonpayers' value-weighted after-tax earnings-to-total-asset ratios in the previous year. Moreover, in this industry, the significant determinants of firms' dividend continuations are value-weighted all companies' market-to-book ratio, value-weighted payers' market-to-book ratio, value-weighted all companies' dividend yields and size, and payers' value-weighted size in the previous year.