Download or read book Does Industrial Organization Explain the Dividend Policy of Japanese Firms? written by Kimie Harada and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use Keiretsu affiliation to analyze the dividend policy of Japanese firms. Assuming that Keiretsu membership provides monitoring benefits and reduces information asymmetries between managers and investors, we test (1) whether dividend changes are more sensitive to growth opportunities for Keiretsu affiliates and (2) whether dividend increases are more closely associated with future profitability increases for unaffiliated firms. Our results do not support the overinvestment hypothesis as both Keiretsu affiliates and non-affiliates increase dividend payments when growth indicators are strong. In contradiction with the signaling hypothesis, dividend increases do not point toward increases in net and operating profitability. However, dividend increases are followed by significant increases in net and operating profits as well as persistent sales growth. We rationalize this finding by assuming that signaling is directed towards the firm's creditors and industrial partners rather than its shareholders. This interpretation is consistent with Japan's distinctive industrial organization.