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MASTER THESIS
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Has the implementation of the mandatory solvency and liquidity tests before distributions after the 2019 Reform of the Belgian "CSA" had an impact on the propensity of firms to distribute dividends and on the size of the dividends distributed

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George, Manon ULiège
Promotor(s) : Compagnie, Vincent ULiège
Date of defense : 4-Sep-2023/8-Sep-2023 • Permalink : http://hdl.handle.net/2268.2/18656
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Title : Has the implementation of the mandatory solvency and liquidity tests before distributions after the 2019 Reform of the Belgian "CSA" had an impact on the propensity of firms to distribute dividends and on the size of the dividends distributed
Translated title : [fr] L'implémentation du double test de liquidité et de solvabilité avant les distributions depuis la réforme de 2019 du CSA a-t-elle eu un impact sur la propension des entreprises à distribuer des dividendes et sur la taille des dividendes distribués?
Author : George, Manon ULiège
Date of defense  : 4-Sep-2023/8-Sep-2023
Advisor(s) : Compagnie, Vincent ULiège
Committee's member(s) : Bils, Anne ULiège
Language : English
Number of pages : 59
Discipline(s) : Business & economic sciences > Finance
Institution(s) : Université de Liège, Liège, Belgique
Degree: Master en sciences de gestion, à finalité spécialisée en Financial Analysis and Audit
Faculty: Master thesis of the HEC-Ecole de gestion de l'Université de Liège

Abstract

[en] This thesis aims at evaluating whether or not the implementation of the new double test inducing
companies to check both their solvency and liquidity positions before allowing them to distribute
dividends or other types of remuneration has had an impact on their propensity to distribute dividends
and the size of the dividends distributed. The companies types targeted by this legislation are the
Limited Liability Companies and Cooperative Companies. This test is the result of the numerous
changes implemented by the Reform of the legislation applicable to companies and associations in
Belgium in 2019. Furthermore, the implementation of this test also had consequences on the external
auditor profession. Indeed, they are now entitled to perform certain special missions in the context of
this test. They have to issue special reports in the intention of the management Boards of the firms
regarding certain aspects of the test performed. In the context of the solvency test, external auditors
issue a report in the intention of the General Assembly stating whether or not the intermediary set of
financial statements provided reflect the reality and has been established in accordance to the
applicable accounting and legal framework if applicable. In the context of the liquidity test, external
auditors have to issue a special report concluding on the adequacy and fairness of historical and
forecasted accounting and financial data provided by the entity as well as on the appropriateness of
the hypotheses used as a basis by the Board of Directors.
In order to conduct this analysis, several steps were followed. First and foremost, an extensive literature
review was built. This first step aims at giving a clearer overview of the existing literature related to the
covered topics and at identifying potential research gaps. The literature review was articulated based
on the following structure. Firstly, the context in which the Reform of the legislation occurred was
detailed taking into account the changes introduced by the Reform of the legislation based on different
articles, the law itself and notes issued by the Institute of External Auditors. After that, the corporate
capital structure stability of firms and its determinants are studied . This aspect is relevant as it is central
in the Reform and also used in the computation of many concepts related to the covered topic such as
the going concern principle. The discussion aims first at giving an overview of the diverging opinion of
authors related to the corporate capital structure stability. Then, the main determinants having an
influence on the financial leverage of companies are addressed. This section also approaches the
dividend policy of firms and the determinants of the latter. This was done in order to try to understand
the factors that could have an influence on the core topic of this thesis which is on one hand the impact
of the Reform on the propensity of firms to distribute dividends and on the other hand, the size of the
dividends distributed.
After defining the environment and giving further details on the covered topic based on the existing
literature, a statistical analysis was conducted. The goal of this analysis is to determine whether or not
the propensity of firms to distribute dividends and the size of the dividends distributed were influenced
by the implementation of the new double test in 2019. In order to do so, a sample of very big Public
Limited Companies active in various sectors in Belgium except the financial and public sectors was built
using the database Bel-first. The initial sample was then downsized based on unconsolidated financial
information and on the availability of financial information for the financial years 2017 to 2021.
Companies with complete accounting periods ending on 31st
December were selected. As a result, we
obtain a total sample of 3830 observations. In the first place, the main statistical model was defined
using two dependent variables, one aiming at measuring the propensity of firms to distribute dividends
(“DIV”) and the other aiming at measuring the size of the dividends (“logDIV”), one variable of interest,
the variable “DOUBLETEST” related to the implementation of the new regulation in 2019 and controls
variables. The main model was then studied. Based on that first test, it was found that the
implementation of the double test did have a negative impact on both the propensity of firms to
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distribute dividends and on the size of the dividends distributed. Then, additional tests were performed
to check the relevance of the findings highlighted beforehand. In order to do so, the initial sample was
divided in subgroups based on criteria such as the solvency level compared to the median of the sample
or the liquidity level compared to the median of the sample. Based on these additional tests, it was
noted that on the liquidity side, neither of the “high liquidity observations” or the “low liquidity
observations” were really impacted by the implementation of the double test. Still, on the solvency
side, it was pointed out that the “low solvency observations” are the most impacted. In other words,
based on supplemental analyses conducted, it can be stated that the real target of the implementation
of the new regulation is the companies which have sufficient financial resources, intermediary liquidity
positions and low solvency positions. Companies that could potentially have distributed dividends
before the Reform but harming the operations at the same time.
As a conclusion, based on the literature reviewed and on the statistical analysis performed, it can be
stated that the implementation of the double test has had impacts on the propensity of firms to
distribute dividends and on the size of the dividends distributed. At least, this is applicable for the
companies included in the selected sample. However, there are some nuances. Indeed, not surprisingly,
the most impacted firms are the firms directly targeted by the regulation, namely the ones located in
the middle when it comes to their liquidity position and in the lower side when it comes to solvency
position. That can be explained by the fact that these companies are the ones that might harm the
business and its continuance the most if undertaking unjustified distributions. As a consequence, the
results of the analysis conducted suggest that the will of the legislator when implementing the Reform
was partly met. Still some further discussion points on potential hidden impacts and area of discussion
such as the inexistence of a materiality threshold and the impact on the distribution frequency are
raised. These left the door open for further research.


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  • George, Manon ULiège Université de Liège > Master sc. gest., à fin.

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