E.F.Fama,K.R.French Journal of Financial Economics 60 (2001)3-43 13 Table 3 Average firm size,and ratios of aggregate earnings,investment,firm value,and liabilities to aggregate assets and book equity,for different dividend groups and for new lists A.,BE,ME,L:=A,-BE,and V =L ME,are assets,book common equity,market value of common equity,book liabilities,and total market value,at the end of fiscal year t.E,Y,.D,.and RD,are earnings before interest but after taxes,after-tax earnings to common stock.dividends,and R&D expenditures for fiscal year t.Investment,dA,.is A,-A,-1.The ratios shown are ratios of the year t aggregate values of the variables for the firms in a group,averaged over the years in a period. Results are shown for all firms and for firms grouped according to dividend status.Results are also shown for all new lists and for newly listed dividend payers and non-payers. 1963-981963-671968-721973-771978-82 1983-87 1988-921993-98 E:/A,(percent) All firms 7.59 8.45 7.38 7.69 9.02 8.04 6.45 6.35 Payers 7.82 8.58 7.54 7.81 9.13 8.37 6.64 6.88 Non-payers 5.37 5.34 5.37 5.94 7.01 4.90 4.94 4.30 Never paid 6.11 5.94 6.07 7.02 9.58 5.54 5.10 3.95 Former payers 4.54 4.57 4.51 4.62 4.32 3.89 4.64 5.13 All new lists 7.56 9.05 7.94 10.10 10.49 5.71 6.70 3.69 Payers 9.04 9.27 8.17 11.13 11.18 10.69 6.75 6.59 Non-payers 6.97 8.06 7.74 9.03 10.60 4.97 6.19 3.00 Y:/BE,(percent) All firms 12.04 12.55 11.58 13.68 14.36 11.37 9.62 11.26 Payers 12.75 12.69 11.87 14.04 14.60 12.07 10.46 13.41 Non-payers 6.15 7.95 7.37 7.67 8.96 3.96 3.44 4.12 Never paid 7.94 9.61 9.20 9.82 13.73 5.70 4.64 3.70 Former payers 3.18 5.91 4.77 4.55 0.67 -0.40 0.46 5.78 All new lists 10.71 14.73 12.63 17.79 16.08 7.09 6.29 2.07 Payers 13.52 14.51 12.54 18.73 17.50 14.78 6.78 10.41 Non-payers 9.88 15.65 13.20 16.21 15.76 5.25 4.75 0.27 dA:/A:(percent) All firms 9.25 9.35 9.70 9.93 10.44 7.11 9.28 9.00 Payers 8.78 9.32 9.52 10.16 10.44 6.57 9.20 6.65 Non-payers 11.62 10.10 13.53 6.47 10.32 12.43 9.62 17.67 Never paid 16.50 13.98 17.98 10.12 17.35 18.20 13.80 22.82 Former payers 4.67 5.46 7.80 1.64 2.85 3.33 3.42 7.61 All new lists 23.29 15.57 21.22 17.87 30.15 28.79 16.04 31.71 Payers 13.42 12.75 16.55 13.38 17.54 14.93 6.50 12.50 Non-payers 30.28 24.62 29.27 25.94 38.43 33.15 22.93 36.38 Vi/A All firms 1.40 1.71 1.52 1.12 1.06 1.24 1.35 1.72 Payers 1.39 1.72 1.53 1.14 1.05 1.22 1.34 1.69 Non-payers 1.42 1.42 1.47 0.99 1.25 1.42 1.42 1.86 Never paid 1.64 1.62 1.70 1.09 1.52 1.65 1.65 2.13 Former payers 1.10 1.17 1.16 0.86 0.94 1.07 1.12 1.34 All new lists 1.76 1.86 1.86 1.32 1.81 1.61 1.68 2.09 Payers 1.51 1.80 1.76 1.27 1.32 1.46 1.39 1.55 Non-payers 1.90 1.93 2.05 1.33 2.16 1.71 1.85 2.20
Table 3 Average "rm size, and ratios of aggregate earnings, investment, "rm value, and liabilities to aggregate assets and book equity, for di!erent dividend groups and for new lists A , BE , ME , ¸ "A !BE , and < "¸ #ME are assets, book common equity, market value of common equity, book liabilities, and total market value, at the end of "scal year t. E ,> , D , and RD are earnings before interest but after taxes, after-tax earnings to common stock, dividends, and R&D expenditures for "scal year t. Investment, dA , is A !A. The ratios shown are ratios of the year t aggregate values of the variables for the "rms in a group, averaged over the years in a period. Results are shown for all "rms and for "rms grouped according to dividend status. Results are also shown for all new lists and for newly listed dividend payers and non-payers. 1963}98 1963}67 1968}72 1973}77 1978}82 1983}87 1988}92 1993}98 E /A (percent) All "rms 7.59 8.45 7.38 7.69 9.02 8.04 6.45 6.35 Payers 7.82 8.58 7.54 7.81 9.13 8.37 6.64 6.88 Non-payers 5.37 5.34 5.37 5.94 7.01 4.90 4.94 4.30 Never paid 6.11 5.94 6.07 7.02 9.58 5.54 5.10 3.95 Former payers 4.54 4.57 4.51 4.62 4.32 3.89 4.64 5.13 All new lists 7.56 9.05 7.94 10.10 10.49 5.71 6.70 3.69 Payers 9.04 9.27 8.17 11.13 11.18 10.69 6.75 6.59 Non-payers 6.97 8.06 7.74 9.03 10.60 4.97 6.19 3.00 > /BE (percent) All "rms 12.04 12.55 11.58 13.68 14.36 11.37 9.62 11.26 Payers 12.75 12.69 11.87 14.04 14.60 12.07 10.46 13.41 Non-payers 6.15 7.95 7.37 7.67 8.96 3.96 3.44 4.12 Never paid 7.94 9.61 9.20 9.82 13.73 5.70 4.64 3.70 Former payers 3.18 5.91 4.77 4.55 0.67 !0.40 0.46 5.78 All new lists 10.71 14.73 12.63 17.79 16.08 7.09 6.29 2.07 Payers 13.52 14.51 12.54 18.73 17.50 14.78 6.78 10.41 Non-payers 9.88 15.65 13.20 16.21 15.76 5.25 4.75 0.27 dA /A (percent) All "rms 9.25 9.35 9.70 9.93 10.44 7.11 9.28 9.00 Payers 8.78 9.32 9.52 10.16 10.44 6.57 9.20 6.65 Non-payers 11.62 10.10 13.53 6.47 10.32 12.43 9.62 17.67 Never paid 16.50 13.98 17.98 10.12 17.35 18.20 13.80 22.82 Former payers 4.67 5.46 7.80 1.64 2.85 3.33 3.42 7.61 All new lists 23.29 15.57 21.22 17.87 30.15 28.79 16.04 31.71 Payers 13.42 12.75 16.55 13.38 17.54 14.93 6.50 12.50 Non-payers 30.28 24.62 29.27 25.94 38.43 33.15 22.93 36.38 < /A All "rms 1.40 1.71 1.52 1.12 1.06 1.24 1.35 1.72 Payers 1.39 1.72 1.53 1.14 1.05 1.22 1.34 1.69 Non-payers 1.42 1.42 1.47 0.99 1.25 1.42 1.42 1.86 Never paid 1.64 1.62 1.70 1.09 1.52 1.65 1.65 2.13 Former payers 1.10 1.17 1.16 0.86 0.94 1.07 1.12 1.34 All new lists 1.76 1.86 1.86 1.32 1.81 1.61 1.68 2.09 Payers 1.51 1.80 1.76 1.27 1.32 1.46 1.39 1.55 Non-payers 1.90 1.93 2.05 1.33 2.16 1.71 1.85 2.20 E.F. Fama, K.R. French / Journal of Financial Economics 60 (2001) 3}43 13
14 E.F.Fama.K.R.French Journal of Financial Economics 60 (2001)3-43 Table 3 (continued) 1963-981963-671968-721973-771978-821983-871988-921993-98 RD:/A: All firms 1.67 0.65 1.08 1.35 1.66 2.36 2.17 2.27 Payers 1.61 0.64 1.11 1.35 1.62 2.30 2.05 2.09 Non-payers 2.07 0.76 0.74 1.33 2.38 2.89 3.19 3.03 Never paid 2.76 0.72 0.83 1.67 3.15 3.93 4.67 4.07 Former payers 1.03 0.80 0.62 0.90 1.52 1.24 1.04 1.08 All new lists 1.44 0.51 0.53 1.19 1.96 1.57 1.79 2.36 Payers 1.05 0.45 0.53 0.94 1.10 0.94 0.81 2.31 Non-payers 1.70 0.68 0.53 1.46 2.62 1.86 2.42 2.23 A All firms 577.06 270.85 336.75 367.40 544.63 584.55 877.91 977.27 Payers 1,389.18 348.33 471.41 533.72 838.59 1,345.672.452.04 3343.61 Non-payers 110.43 43.75 71.71 65.89 70.88 92.44 143.87 255.46 Never paid 81.68 31.14 57.71 49.09 47.53 68.40 99.20 195.88 Former payers 262.42 84.34 101.04 116.79 148.30 211.73 399.68 689.62 All new lists 70.24 45.61 56.67 25.89 23.96 65.96 96.32 159.43 Payers 323.21 50.34 78.09 58.73 64.34 208.77 608.28 1.048.80 Non-payers 52.98 36.22 37.78 15.57 15.69 55.76 63.66 130.62 L/A All firms 0.55 0.41 0.51 0.57 0.54 0.52 0.64 0.62 Payers 0.54 0.40 0.50 0.57 0.53 0.52 0.64 0.64 Non-payers 0.60 0.57 0.62 0.63 0.63 0.57 0.62 0.56 Never paid 0.55 0.57 0.60 0.60 0.54 0.51 0.54 0.51 Former payers 0.67 0.57 0.63 0.66 0.72 0.68 0.73 0.66 All new lists 0.53 0.47 0.51 0.55 0.55 0.56 0.53 0.54 Payers 0.52 0.43 0.47 0.51 0.57 0.45 0.60 0.58 Non-payers 0.55 0.61 0.57 0.58 0.51 0.58 0.51 0.53 After 1977,more than 85%of new lists trade on NASDAQ.One might suspect that the declining incidence of dividend payers is a NASDAQ phenom- enon,driven by looser listing standards.In fact,all three exchanges contribute to the growth of unprofitable new lists.Among firms that begin trading between 1978 and 1998,10.7%of NYSE new lists,29.0%of AMEX new lists,and 23.6% of NASDAQ new lists have negative common stock earnings.Fig.5 shows that all three exchanges experience large declines in the percent of payers after 1978. The fraction of NYSE firms paying dividends drops from 88.6%in 1979 to 52.0%in 1999,a level not seen since the Great Depression.AMEX and NASDAQ payers drop from peaks of 63.4 and 54.1%in 1978 and 1977 to 16.9 and 8.6%in 1999.Thus,although it coincides with the explosion of unprofitable NASDAQ new lists,the decline in the percent of firms paying dividends is not limited to NASDAQ
Table 3 (continued) 1963}98 1963}67 1968}72 1973}77 1978}82 1983}87 1988}92 1993}98 RD /A All "rms 1.67 0.65 1.08 1.35 1.66 2.36 2.17 2.27 Payers 1.61 0.64 1.11 1.35 1.62 2.30 2.05 2.09 Non-payers 2.07 0.76 0.74 1.33 2.38 2.89 3.19 3.03 Never paid 2.76 0.72 0.83 1.67 3.15 3.93 4.67 4.07 Former payers 1.03 0.80 0.62 0.90 1.52 1.24 1.04 1.08 All new lists 1.44 0.51 0.53 1.19 1.96 1.57 1.79 2.36 Payers 1.05 0.45 0.53 0.94 1.10 0.94 0.81 2.31 Non-payers 1.70 0.68 0.53 1.46 2.62 1.86 2.42 2.23 A All "rms 577.06 270.85 336.75 367.40 544.63 584.55 877.91 977.27 Payers 1,389.18 348.33 471.41 533.72 838.59 1,345.67 2,452.04 3,343.61 Non-payers 110.43 43.75 71.71 65.89 70.88 92.44 143.87 255.46 Never paid 81.68 31.14 57.71 49.09 47.53 68.40 99.20 195.88 Former payers 262.42 84.34 101.04 116.79 148.30 211.73 399.68 689.62 All new lists 70.24 45.61 56.67 25.89 23.96 65.96 96.32 159.43 Payers 323.21 50.34 78.09 58.73 64.34 208.77 608.28 1,048.80 Non-payers 52.98 36.22 37.78 15.57 15.69 55.76 63.66 130.62 ¸ /A All "rms 0.55 0.41 0.51 0.57 0.54 0.52 0.64 0.62 Payers 0.54 0.40 0.50 0.57 0.53 0.52 0.64 0.64 Non-payers 0.60 0.57 0.62 0.63 0.63 0.57 0.62 0.56 Never paid 0.55 0.57 0.60 0.60 0.54 0.51 0.54 0.51 Former payers 0.67 0.57 0.63 0.66 0.72 0.68 0.73 0.66 All new lists 0.53 0.47 0.51 0.55 0.55 0.56 0.53 0.54 Payers 0.52 0.43 0.47 0.51 0.57 0.45 0.60 0.58 Non-payers 0.55 0.61 0.57 0.58 0.51 0.58 0.51 0.53 After 1977, more than 85% of new lists trade on NASDAQ. One might suspect that the declining incidence of dividend payers is a NASDAQ phenomenon, driven by looser listing standards. In fact, all three exchanges contribute to the growth of unpro"table new lists. Among "rms that begin trading between 1978 and 1998, 10.7% of NYSE new lists, 29.0% of AMEX new lists, and 23.6% of NASDAQ new lists have negative common stock earnings. Fig. 5 shows that all three exchanges experience large declines in the percent of payers after 1978. The fraction of NYSE "rms paying dividends drops from 88.6% in 1979 to 52.0% in 1999, a level not seen since the Great Depression. AMEX and NASDAQ payers drop from peaks of 63.4 and 54.1% in 1978 and 1977 to 16.9 and 8.6% in 1999. Thus, although it coincides with the explosion of unpro"table NASDAQ new lists, the decline in the percent of "rms paying dividends is not limited to NASDAQ. 14 E.F. Fama, K.R. French / Journal of Financial Economics 60 (2001) 3}43
E.F.Fama,K.R.French Journal of Financial Economics 60 (2001)3-43 15 Deciie 0.1 Decile 6 Decile 5 Decile 4 Decile 3 备01 Decile 2 -0.2 -0.3 0.4 1963 1968 1973 1976 1983 1988 1993 1998 Year Fig.3.Decile breakpoints for E/A..The sample of Compustat firms for calendar year t,1963-98, includes non-financial non-utility firms with fiscal year-ends in t that satisfy the data requirements described in the appendix.E,is earnings before interest but after taxes in year t.A,is the book value of assets in year t. 3.2.Investment opportunities Like profitability,investment opportunities differ across dividend groups. Firms that have never paid dividends have the best growth opportunities. Table 3 shows that they have much higher asset growth rates for 1963-98 (16.50%per year)than dividend payers(8.78%)or former payers(4.67%).V/A, (the ratio of the aggregate market value to the aggregate book value of assets)is also higher for firms that have never paid(1.64)than for payers(1.39)or former payers (1.10).The R&D expenditures of firms that have never paid are on average 2.76%of their assets,versus 1.61%for dividend payers and 1.03%for former payers.Thus,though firms that have never paid seem to be less profitable than dividend payers,they have better growth opportunities.In contrast,former payers are victims of a double whammy-low profitability and poor investment opportunities. Newly listed firms are again of interest.Dividend-paying new lists invest at a higher rate during 1963-98(13.42%per year,Table 3)than all dividend payers (8.78%).There is an even larger spread between the asset growth rates of non-paying new lists and all non-paying firms.The 1963-98 average growth rate
Fig. 3. Decile breakpoints for E /A . The sample of Compustat "rms for calendar year t, 1963}98, includes non-"nancial non-utility "rms with "scal year-ends in t that satisfy the data requirements described in the appendix. E is earnings before interest but after taxes in year t. A is the book value of assets in year t. 3.2. Investment opportunities Like pro"tability, investment opportunities di!er across dividend groups. Firms that have never paid dividends have the best growth opportunities. Table 3 shows that they have much higher asset growth rates for 1963}98 (16.50% per year) than dividend payers (8.78%) or former payers (4.67%). < /A (the ratio of the aggregate market value to the aggregate book value of assets) is also higher for "rms that have never paid (1.64) than for payers (1.39) or former payers (1.10). The R&D expenditures of "rms that have never paid are on average 2.76% of their assets, versus 1.61% for dividend payers and 1.03% for former payers. Thus, though "rms that have never paid seem to be less pro"table than dividend payers, they have better growth opportunities. In contrast, former payers are victims of a double whammy } low pro"tability and poor investment opportunities. Newly listed "rms are again of interest. Dividend-paying new lists invest at a higher rate during 1963}98 (13.42% per year, Table 3) than all dividend payers (8.78%). There is an even larger spread between the asset growth rates of non-paying new lists and all non-paying "rms. The 1963}98 average growth rate E.F. Fama, K.R. French / Journal of Financial Economics 60 (2001) 3}43 15
16 E.F.Fama,K.R.French Journal of Financial Economics 60 (2001)3-43 100 90 80 70 50 40 20 0 1963 1966 1973 1978 1983 1988 1993 1999 Year Fig.4.Percent of newly listed firms with positive earnings on common stock,Y:>0.A firm in the Compustat sample is defined as a new list in calendar year t if it is added to the CRSP database between January and December of year t.NYSE firms added to the CRSP database in December 1925.AMEX firms added in July 1962.and NASDAO firms added between December 1972 and February 1973 are not defined as new lists.Earnings on common stock,Y,is earnings after interest, taxes,and preferred dividends. for non-paying new lists -an extraordinary 30.28%per year-is almost twice the high 16.50%average growth rate for all firms that have never paid divi- dends.Similarly,V/A,is higher for newly listed non-payers than for all firms that have never paid dividends.Thus,although newly listed non-payers suffer from low profitability later in the period,they have abundant investments. Some readers express a preference for capital expenditures (roughly the change in long-term assets),rather than the change in total assets,to measure investment.Our view is that short-term assets are investments.Just as they invest in machines,firms invest in cash,accounts receivable,and inventory to facilitate their business activities.And when cash is retained for future long-term investments,the resources for these investments are committed when the cash is acquired. Finally,a caveat is in order.The investment evidence suggests that,measured by E/A,,the profitability advantage of dividend payers over firms that have never paid is probably exaggerated,for three reasons.(i)If investments take time to reach full profitability,E,/A,understates profitability for growing firms.And firms that have never paid grow faster than dividend payers.(ii)When R&D is
Fig. 4. Percent of newly listed "rms with positive earnings on common stock, > '0. A "rm in the Compustat sample is de"ned as a new list in calendar year t if it is added to the CRSP database between January and December of year t. NYSE "rms added to the CRSP database in December 1925, AMEX "rms added in July 1962, and NASDAQ "rms added between December 1972 and February 1973 are not de"ned as new lists. Earnings on common stock, > , is earnings after interest, taxes, and preferred dividends. for non-paying new lists } an extraordinary 30.28% per year } is almost twice the high 16.50% average growth rate for all "rms that have never paid dividends. Similarly, < /A is higher for newly listed non-payers than for all "rms that have never paid dividends. Thus, although newly listed non-payers su!er from low pro"tability later in the period, they have abundant investments. Some readers express a preference for capital expenditures (roughly the change in long-term assets), rather than the change in total assets, to measure investment. Our view is that short-term assets are investments. Just as they invest in machines, "rms invest in cash, accounts receivable, and inventory to facilitate their business activities. And when cash is retained for future long-term investments, the resources for these investments are committed when the cash is acquired. Finally, a caveat is in order. The investment evidence suggests that, measured by E /A , the pro"tability advantage of dividend payers over "rms that have never paid is probably exaggerated, for three reasons. (i) If investments take time to reach full pro"tability, E /A understates pro"tability for growing "rms. And "rms that have never paid grow faster than dividend payers. (ii) When R&D is 16 E.F. Fama, K.R. French / Journal of Financial Economics 60 (2001) 3}43