What is ‘Illegal Dividend’
A dividend declared by a corporation that is in violation of its charter and/or of state laws. Should such a dividend be declared, the company’s board of directors can be sued by its shareholders and creditors; the company may also face prosecution.
Explaining ‘Illegal Dividend’
Many states prohibit dividend payments from the capital surplus account. Dividends are generally paid out of net income or retained earnings. Illegal dividends may significantly weaken the financial position of the company and expose its creditors to a greater degree of risk.
Further Reading
- On the 'economic dividend'of devolution – rsa.tandfonline.com [PDF]
- Behavioral rationality in finance: The case of dividends – www.jstor.org [PDF]
- Corporate governance and corporate performance: A comparison of Germany, Japan, and the US – onlinelibrary.wiley.com [PDF]
- Why individual investors want dividends – www.sciencedirect.com [PDF]
- Blockholders Counterbalance, Illegal Behaviors and External Supervision: Evidences from Listed Companies from 2004 to 2005 [J] – en.cnki.com.cn [PDF]
- Law, finance, and economic growth in China – www.sciencedirect.com [PDF]
- Amnesty International? The nature, scale and impact of capital flight from South Africa – www.tandfonline.com [PDF]
- Shareholder wealth effects of dividend policy changes in an emerging stock market: The case of Cyprus – papers.ssrn.com [PDF]
- Taxes and dividend clientele: Evidence from trading and ownership structure – www.sciencedirect.com [PDF]
- Dividend yield investment strategies, the payout ratio and zero-dividend stocks – joi.pm-research.com [PDF]