Interrelation between dividend policy and corporate reputation in Russian companies

УПРАВЛЕНЕЦ 2019. Том 10. № 4 14 Стратегический менеджмент и корпоративное управление DOI: 10.29141/2218-5003-2019-10-4-2 Interrelation between dividend policy and corporate reputation in Russian companies Alla V. Vavilina, Lidia N. Levanova, Irina N. Tkachenko Abstract. The paper analyses the formation and development of dividend payment procedures in Russian companies and explores the content of corporate reputation and its components. According to the dividend signaling hypothesis, dividends, being an indicator of profitability and financial stability, act as determinants of a company’s sustainable development. This affects its stock price and forges corporate reputation for investors. The authors examine the dynamics of dividends paid out by the leading Russian companies highlighting the phases of emergence and formation of dividend policy in Russia, industry-specific nature and the dominant type of dividend policy. The authors apply the classification of the types of dividend policy (conservative, moderate and aggressive) and use the methods of analysis and synthesis, econometric modeling (regression model building). The source data include the ratings and statistical evidence provided by the Russian Institute of Directors (RID) as well as statistical data retrieved from online resources. The authors conclude that, since 2001, Russian companies have been paying dividends to win investment attractiveness in the eyes of foreign investors. We suppose, therefore, that the emerging dividend policy is becoming one of the indicators of corporate reputation of Russian companies. The analysis shows no statistically significant dependence of stock prices of Russian companies on the size of dividends paid out, but there is some evidence that dividend signaling hypothesis is being implemented in the Russian economy. The study reveals that aggressive dividend policy prevailing in companies partly owned by the state is due to the specificity of rules and regulations in Russia and ambitions of other companies to improve their reputation among investors. Keywords: corporate governance; corporate reputation; dividend policy; stock price. JEL Classification: L14, G34, G35 Paper submitted: March 25, 2019 For citation: Vavilina A.V., Levanova L.N., Tkachenko I.N. Interrelation between dividend policy and corporate reputation in Russian companies. Upravlenets – The Manager, 2019, vol. 10, no. 4, pp. 14–23. DOI: 10.29141/2218-5003-2019-10-4-2. INTRODUCTION Under modern conditions, attraction and costs of investment inherently associated with such notions as image and reputation of companies are the pressing problems in the Russian economy. Since the middle of the twentieth century, the concepts of image and reputation, that used to be personal categories, have gained an economic denotation. The evolution of corporate governance as a specific domain of management science and the formation of large corporations have expanded an entrepreneur’s image and a company’s business reputation to corporate ones. Consequently, the main components of investment attractiveness of modern companies are their corporate ranking and formidable corporate reputation. The purpose of the research is to establish the development level of dividend policy in Russian companies at the current stage and reveal whether dividends paid out by Russian corporations indicate their strong corporate reputation. To accomplish the stated aim, the authors tackle the following objectives: to analyse the dividend history of Russian companies; to discuss its specificity; to determine the stages of dividend policy formation; to examine the effect of dividend signaling hypothesis in the Russian practice; to investigate the dependence of stock price of the leading Russian companies on the size of dividends paid out; to establish the dominant type of dividend policy. In the course of the study, the authors analyse the hypothesis of practical implementation of the dividend signaling theory [Brigham, Ehrhardt, 2005], which implies that rising dividend payments automatically increase the market value of Russian companies’ shares which provide shareholders with additional revenue. Within the framework of dividend signaling theory, dividend payments are viewed as an information signal to the market that allows shareholders to estimate a company’s prospects. Hence, dividends are one of the indicators of corporate reputation. DIVIDEND POLICY AND CORPORATE REPUTATION: THEORETICAL APPROACHES From the standpoint of stakeholder theory [Freeman, 1984], while operating, a corporation forms certain obligations to both their shareholders and various groups of stakeholders, such as employees, customers, suppliers, creditors, the state and society at large. Focusing on various signals coming from a company, stakeholders receive and accumulate information about the fulfillment of these obligations. According to Brammer and Pavelin [2004, p. 704], this information creates the company’s reputation. Among market signals, researchers put a special emphasis on marketing indicators; among strategic signals, they stress mission, objectives, types of strategy and innovation activity; the most significant institutional signal is corporate social responsibility and crucial financial signals embrace dividend policy and financial indicators. As a result, a company’s reputation, being evaluated by numerous stakeholders, is transformed into corporate reputation. According to Boldyreva [2017, p. 30], corporate reputation is a collective judgement on the company that is formed over time in the minds of target groups based on expert assessments of economic, social and environmental aspects of its activities. A corporation should undoubtedly build a positive reputation for all its stakeholders, but we believe that investors and shareholders are the most important of them, since they usually invest lots of resources to set up the company and help it exist as a legal entity. The probability of attracting investment throughout the business lifecycle predetermines its sustainable development [Tkachenko, Zlygostev, 2018]. Thus, the key signals of strong goodwill for investors and stakeholders are return on investment, return on equity, dividend yield, dividend policy and dividend history. An organization’s dividend policy can be viewed as a type of managerial decisions regarding the following parameters: the share of net profit intended for paying dividends to shareholders; the choice of the dividend policy type, as well as the nature, form and frequency of dividend payments; the degree of adaptability. Dividend decisions are an integral part of the corporate governance system, since the market value of companies depends on meeting shareholders’ expectations. DIVIDEND POLICY: RESEARCH AND EXPERIENCE Foreign studies on the cause-and-effect relationship of dividend policy in the framework of corporate governance and market development are quite diverse. Burgeoning o (...truncated)