Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-26T03:40:18.008Z Has data issue: false hasContentIssue false
  • English
  • Français

The Influence of Dividends, Growth, and Leverage on Share Prices in the Electric Utility Industry: An Econometric Study

Published online by Cambridge University Press:  06 April 2009

Dileep R. Mehta ,
Edward A. Moses ,
Benoit Deschamps  and
Michael C. Walker
Get access Rights & Permissions [Opens in a new window]

Extract

During the past 20 years several theoretical valuation models with empirically testable implications regarding the impact of financial decisions, particularly debt policy and dividend policy, have appeared in the financial literature. Some of these models have been subjected to extensive testing. However, results of these investigations are inconclusive and/or conflicting as to the impact of financial policies on share value. For instance, on the basis of a study of electric utility firms, Miller and Modigliani (M&M) find that neither dividend nor debt policies of the firm affect the value of the firm. On the other hand, Weston, as well as Brigham and Gordon, disagree with M&M's findings based upon their own investigations of electric utility firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 5 , December 1980 , pp. 1163 - 1196
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Bar-Yosef, S., and Kolodny, R.. “Dividend Policy and Capital Market Theory.” Review of Economics and Statistics, Vol. 58, No. 2 (05 1976), pp. 181–190.CrossRefGoogle Scholar
[2]Black, F.; Jensen, M. C.; and Scholes, M.. “The Capital Asset Pricing Model: Some Empirical Tests.” In Studies in the Theory of Capital Markets, Jensen, M. C., (ed.) New York: Praeger Publishing (1972), pp. 79–121.Google Scholar
[3]Blume, M. E. “Betas and Their Regression Tendencies.” Journal of Finance, Vol. 30, No. 3 (06 1975), pp. 785–796.CrossRefGoogle Scholar
[4]Board of Governors, Federal Reserve Bulletin, Washington, D.C. (selected issues).Google Scholar
[5]Brennan, M. “A Note on Dividend Irrelevance and the Gordon Valuation Model.” Journal of Finance, Vol. 26, No. 5 (12 1971), pp. 1115–1121.Google Scholar
[6]Brigham, E. F., and Gordon, M. J.. “Leverage, Dividend Policy and the Cost of Capital.” Journal of Finance, Vol. 25, No. 1 (03 1968), pp. 85–103.CrossRefGoogle Scholar
[7]Cragg, J., and Malkiel, B. G.. “The Consensus and Accuracy of Some Predictions of the Growth of Corporate Earnings.” Journal of Finance, Vol. 23, No. 1 (03 1968), pp. 67–87.CrossRefGoogle Scholar
[8]Dhrymes, P. J.Econometrics: Statistical Foundations and Applications. New York: Springer-Verlag (1974), 2nd printing.CrossRefGoogle Scholar
[9]Elton, E. J., and Gruber, M. “Valuation and the Cost of Capital for Regulated Industries.” Journal of Finance, Vol. 26, No. 3 (06 1971), pp. 661–670.CrossRefGoogle Scholar
[10]Elton, E. J., and Gruber, M. “Valuation and the Cost of Capital for Regulated Industries: Reply.” Journal of Finance, Vol. 27, No. 5 (12 1972), pp. 1150–1155.CrossRefGoogle Scholar
[11]Fama, E. F., and Miller, M. H.. The Theory of Finance. New York: Holt, Rinehart and Winston (1972).Google Scholar
[12]Gordon, M. J.The Investment, Financing and Valuation of the Corporation. Homewood, Ill.: Richard D. Irwin Inc. (1962).Google Scholar
[13]Gordon, M. J. “Some Estimates of the Cost of Capital to the Electric Utility Industry, 1954–1957: A Comment.” American Economic Review, Vol. 57, No. 5 (12 1967), pp. 1267–1277.Google Scholar
[14]Gordon, M. J., and McCallum, J.. “Valuation and the Cost of Capital for Regulated Industries: Comment.” Journal of Finance, Vol. 27, No. 5 (12 1972), pp. 1141–1146.CrossRefGoogle Scholar
[15]Hamada, R. “Portfolio Analysis, Market Equilibrium and Corporation Finance.” Journal of Finance, Vol. 24, No. 1 (03 1969), pp. 13–31.CrossRefGoogle Scholar
[16]Hamada, R. “The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stock.” Journal of Finance, Vol. 27, No. 2 (05 1972), pp. 435–453.CrossRefGoogle Scholar
[17]Higgins, R. C. “Dividend Policy and Increasing Discount Rates: A Clarification.” Journal of Financial and Quantitative Analysis, Vol. 7, No. 3 (06 1972), pp. 1757–1762.CrossRefGoogle Scholar
[18]Jaffe, J. J., and Mandelker, G.. “The Value of the Firm under Regulation.” Journal of Finance, Vol. 31, No. 2 (05 1976), pp. 701–713.CrossRefGoogle Scholar
[19]Johnston, J.Econometric Methods, 2nd Ed.New York: McGraw-Hill Book Company (1972).Google Scholar
[20]Lerner, E. M., and Carleton, W. T.. A Theory of Financial Analysis. New York: Harcourt, Brace & World, Inc. (1966).Google Scholar
[21]Lintner, J. “The Valuation of Risky Assets and the Selection of Risky Investment in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, Vol. 47, No. 1 (02 1965), pp. 13–37.CrossRefGoogle Scholar
[22]Lintner, J.. “Security Prices, Risk and Maximal Gains from Diversification.” Journal of Finance, Vol. 20, No. 5 (12 1965), pp. 587–615.Google Scholar
[23]Malkiel, B. G. “The Valuation of Public Utility Equities.” Bell Journal of Economics and Management Science, Vol. 1 (Spring 1970), pp. 143–160.Google Scholar
[24]Miller, M. H., and Modigliani, F.. “Dividend Policy, Growth and the Valuation of Shares.” Journal of Business, Vol. 34, No. 4 (10 1961), pp. 411–433.CrossRefGoogle Scholar
[25]Miller, M. H., and Modigliani, F. “Some Estimates of the Cost of Capital to the Electric Utility Industry, 1954–57.” American Economic Review, Vol. 56, No. 3 (06 1966), pp. 333–391.Google Scholar
[26]Modigliani, F., and Miller, M. H. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, Vol. 48, No. 3 (06 1958), pp. 261–297.Google Scholar
[27]Modigliani, F., and Miller, M. H. “Corporate Income Taxes and the Cost of Capital: A Correction.” American Economic Review, Vol. 53, No. 3 (06 1963), pp. 433–443.Google Scholar
[28]Modigliani, F., and Sutch, R.. “Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience.” Journal of political Economy Vo1. 75, No. 4 Part II Supplement (08 1967), pp. 569–589.CrossRefGoogle Scholar
[29]Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica, Vol. 34, No. 4 (10 1966), pp. 768–783.CrossRefGoogle Scholar
[30]Robichek, A. A.; McDonald, J. G.; and Higgins, R. C.. “Some Estimates of the Cost of Capital to the Electric Utility Industry, 1954–57: Comment.” American Economic Review, Vol. 57, No. 5 (12 1957), pp. 1278–1288.Google Scholar
[31]Sharpe, W. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, Vol. 19, No. 3 (09 1964), pp. 425–442.Google Scholar
[32]Stiglitz, J. E. “Some Aspects of the Pure Theory of Corporate Finance Bankruptcies and Take-Overs.” The Bell Journal of Economics and Management Science, Vol. 3 (Autumn 1972), pp. 458–482.CrossRefGoogle Scholar
[33]Theil, H.Principles of Econometrics. New York: John Wiley & Sons, Inc. (1971).Google Scholar
[34]Weston, J. F. “A Test of Cost of Capital Propositions.” The Southern Economic Journal, Vol. 30, No. 2 (10 1963), pp. 105–112.CrossRefGoogle Scholar
[35]Weston, J. F., and Rice, E. M.. “Discussion.” The Journal of Finance, Vol. 31, No. 2 (05 1976), pp. 743–747.Google Scholar