Stock Valuation, Dividends and Learning Through Age: how learning about a firm and its dividend policy affects its valuation

Detta är en Magister-uppsats från Lunds universitet/Nationalekonomiska institutionen

Sammanfattning: This paper looks into how learning about firms and their dividend policy affects their valuation, while comparing the results between North American and German firms. Learning is observed through the age of a firm,where the market-to-book ratio (M/B) is predicted to decline over a firm’s lifespan. M/B is expected to be affected positively by the uncertainty of growth, and this effect is associated more with dividend non-payers than dividend payers. In other words, because of the uncertainty that firms exhibit at their young age, M/B should increase, especially for dividend non-payers. Also,young newly-listed firms that do not pay dividends are expected to have a higher M/B than firms that do pay dividends. These expectations held when conducting the study on North American firms, but when testing for German firms, the results differed from the expectations. M/B does not seem to have any relationship with age when conducting the study on German dividend-paying firms. German firms that do not pay dividends exhibit a high M/B in the first year followed by a steep decline as firms grow in age. However, this high valuation and the decline in M/B can be explained by over-optimism. These predictions are tested using the Fama-MacBeth two step regression and are reported in the empirical results subsection. Finally, the data was collected using Compustat and Datastream for NorthAmerican and German firms respectively.

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