The economic consequences of accounting for stock splits and large stock dividends

Article Abstract:

Previous studies of stock dividends and stock splits have incorrectly assumed that stock splits do not limit future cash dividends and that cash dividends are limited only to the amount of retained earnings. To rectify this misconception, a study was conducted based on actual accounting treatment and appropriate statutory definitions of distributable equity. It used data from a sample of 285 firms announcing stock distributions of 25% and higher during the 1978-1990 timeframe that were announced in the Wall Street Journal Index. Findings revealed that more positive information is signaled by the choice of the stock distribution accounting method that minimizes distributable equity. Implications are discussed.

Research, Accounting, Dividends, Stock splitting, Information measurement

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A rejoinder to 'Measuring Production Efficiency in a Not-for-Profit Setting: An Extension.' (response to article by Yaw M. Mensah and Shu-Hsing Li in this issue, p. 66)

Article Abstract:

Mensah and Li's (1993) extension of the translog model for budgeting in a not-for-profit setting is flawed because the operating expenditure data used do not include capital cost. The original model estimates short-run cost functions on the assumption that the sample firms had been unable to make optimal physical adjustments, and thus, are unlikely to operate in terms of long-run equilibrium. Nevertheless, despite being pedagogical, their qualifications regarding generalizability are valid. Their model accounts for both financial and operational accountability for physical resources in a not-for-profit setting, resulting in a more comprehensive budgetary system for managers.

Models, Evaluation, Finance, Data envelopment analysis, Nonprofit organizations, Program budgeting

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