Management Disclosure of Long-term Payout Targets, Firm Performance and Corporate Governance

Research Project

Project/Area Number	22K01576
Research Category	Grant-in-Aid for Scientific Research (C)
Allocation Type	Multi-year Fund
Section	一般
Review Section	Basic Section 07060:Money and finance-related
Research Institution	Akita International University
Principal Investigator	Watkins Clinton 国際教養大学, 国際教養学部, 教授 (80750108)
Project Period (FY)	2022-04-01 – 2025-03-31
Project Status	Granted (Fiscal Year 2023)
Budget Amount *help	¥3,510,000 (Direct Cost: ¥2,700,000、Indirect Cost: ¥810,000) Fiscal Year 2024: ¥910,000 (Direct Cost: ¥700,000、Indirect Cost: ¥210,000) Fiscal Year 2023: ¥1,040,000 (Direct Cost: ¥800,000、Indirect Cost: ¥240,000) Fiscal Year 2022: ¥1,560,000 (Direct Cost: ¥1,200,000、Indirect Cost: ¥360,000)
Keywords	Corporate dividends / Corporate payout policy / Firm performance / Corporate governance / Retained earnings / Cash holdings / Repurchases / Payout policy / Dividends / Cross-section of returns
Outline of Research at the Start	Corporations' management have long been thought to maintain long-term dividend payout targets, but there is little evidence on what these targets are or how they evolve over time. This project will develop a database of voluntary long-term payout target disclosures by listed Japanese firms. The properties of payout targets and their relationships with firm performance, stock returns, actual payouts, bankruptcy risk and corporate governance characteristics will be investigated.
Outline of Annual Research Achievements	The project is developing and analyzing a database of voluntary long-term payout target disclosures by listed Japanese firms, including related issues such as governance and cash holdings. The project progressed as follows. Intensive manual verification of the payout target data collected using natural language processing from corporate filings has been done to confirm its validity. An extensive database of corporate financial data has been assembled for all listed Japanese firms from 2000 to 2023. Textual data from the Yuho from 2020 to December 2023 has been collected from EDINET to extend the sample of voluntary payout targets. Work on the related issue of cash holdings has proceeded with initial modeling completed and the results presented at an international conference.
Current Status of Research Progress	Current Status of Research Progress 3: Progress in research has been slightly delayed. Reason Manual verification and improvement of the voluntary payout target data took longer than expected. Given that the voluntary reporting of numerous firms is sporadic, the decision was made to extend the data set from 2020 to 2023 to improve the prospects for robust modelling results, and this work is presently underway. As payout policy is connected through retained earnings to cash holdings, related hypotheses are being examined as additional work on the project.
Strategy for Future Research Activity	Using natural language processing techniques, I will extend the payout target database coverage from 2020 to the end of 2023. Data on corporate governance for listed Japanese firms is expected to be purchased from a commercial vendor shortly. Models of dividend smoothing based on Lintner's partial adjustment model and other models in the literature that relate ex-post payouts to targets and other firm-level financial data will be re-estimated with the improved database developed over the past year. Modeling work developed during 2023 on the related determinants of Japanese firms' cash holdings will be extended in 2024 with new data and more sophisticated regression techniques due to peer feedback in received in 2023. Results from the improved modeling of dividends and cash holdings will be presented at international conferences during 2024 to gain peer feedback, further enhance the research, and develop draft manuscripts for publication.