Determinants of Dividend Policy: A Study About the Impact of Changing Firm Characteristics on Dividend Payout Ratios
37 Pages Posted: 31 May 2019
University of Western Ontario, Department of Economics, Students
Date Written: April 25, 2019
There have been many studies in the past which have studied the relationship between dividend policy of a firm its characteristics. This study builds upon these and extends the research to publicly traded, North American firms in the past 30-year time period (1989-2019). The key question that this research paper aims to answer is which, if any, firm characteristics have any causal relationship with the dividend payout ratio of the firm. This study also looks at the appearing and disappearing phenomenon of cash dividends in the past 30 years and aims to reconcile the changing characteristics of the firms to this phenomenon. This is done by creating sub-periods within the dataset and observing the changing characteristics of the firms and the possible impact on the dividend payout ratios of the firms. It was found that size and liquidity produce statistically significant results in terms of having some relationship the dividend payout ratios of the firms. After performing the Granger-Causality test, it was determined that only liquidity of the firm has some causal relationship with the dividend payout ratio of a firm.
Keywords: Dividend payout ratio, firm characteristics, liquidity and size of a firm
Suggested Citation: Suggested Citation
Hira Ahmad (Contact Author)
University of western ontario, department of economics, students ( email ).
1151 Richmond Street London, Ontario N6A 5C2 Canada
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Managerial Finance
ISSN : 0307-4358
Article publication date: 13 March 2019
Issue publication date: 8 April 2019
The purpose of this paper is to identify the determinants of dividend policy in an emerging and developing market.
Design/methodology/approach
The study employs a quantitative approach using 191 Sri Lankan firms and 1,337 firm-year observations as the sample. The authors apply a Binary Logistic Regression model to uncover the determinants of the propensity to pay dividends, and a Fixed Effect Panel Regression to investigate the determinants of dividend payout.
The authors identify past dividend decision, earnings, investment opportunities, profitability, free cash flow (FCF), corporate governance, state ownership, firm size and industry influence as the key determinants of propensity to pay dividends. In addition past dividends, investment opportunities, profitability and dividend premium are identified as the determinants of dividend payout. Moreover, there is a feedback between dividend yield and profitability in one lag and between dividend yield and dividend premium in two lags, as short-term relationships. Hence, past dividend decision or payout, profitability and investment opportunities are a common set of determinants with implications for both propensity to pay dividends and its payout. The findings support theories of dividends such as signaling, outcome, catering, life cycle, FCF and pecking order.
Practical implications
The findings are important for investors, managers and future research. Investors should focus on the determinants identified by our study when making investment decisions whereas managers should practice the same when formulating appropriate dividend policies for their firms. Future research should rely on propensity to pay dividends and its payout simultaneously to promote a theoretical consensus on the dividend determinant puzzle.
Originality/value
This is the first study that investigates determinants of propensity to pay dividends and dividend payout along with short-term relationships in a single study.
- Dividend policy
- Dividend payout
- Propensity to pay dividends
Acknowledgements
This research is self-funded.
Dewasiri, N.J. , Yatiwelle Koralalage, W.B. , Abdul Azeez, A. , Jayarathne, P.G.S.A. , Kuruppuarachchi, D. and Weerasinghe, V.A. (2019), "Determinants of dividend policy: evidence from an emerging and developing market", Managerial Finance , Vol. 45 No. 3, pp. 413-429. https://doi.org/10.1108/MF-09-2017-0331
Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited
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Determinants of dividend payout decisions: a dynamic panel data analysis of turkish stock market.
1. Introduction
2. literature review, 3. data and methodology, 3.2. variables and descriptive statistics.
| ) = 1 Billion × (Market Capitalization) |
| ) = Net Profit/Equity |
| ) = Liquid Assets/Short Term Liabilities |
| ) = Year of Financial Report–Year of Founding of Company |
| = If the company is under family control = 1, If not = 0 |
| ) = Short and Long-Term Liabilities/Total Assets |
| ) = Market Value/Book Value calculated as of 31/12 |
| ) = The previous year’s dividend payout per share |
3.3. Methodology
4. empirical results, 5. conclusions, author contributions, conflicts of interest.
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| 1 | |
| 2 | ( ) and ( ). Therefore, the results of this variable should be interpreted accordingly. |
| 3 | |
| 4 |
| Study | Debt Ratio | Liquid. | Ownership | Mat. (Age) | MV/BV Ratio | Pre. Div. | Prof. | Size | |
|---|---|---|---|---|---|---|---|---|---|
| Fam. | Non-Fam. | ||||||||
| ( )—Pakistan | - | + | + | ||||||
| ( )–S. Arabia | + | + | + | ||||||
| ( ) | + | + | |||||||
| ( )—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE | - | + | + | ||||||
| ( )—Jordan | - | + | + | + | |||||
| ( )—Oman | - | + | + | ||||||
| ( )—Ghana | + | - | + | ||||||
| ( )—US | + | + | |||||||
| ( )—USA, Canada, UK, Germany, France and Japan | + | ||||||||
| ( )—Indonesia | - | ||||||||
| ( )—International | - | ||||||||
| ( )—UAE | + | ||||||||
| ( )—Lebanon | + | - | + | ||||||
| ( )—Ghana | - | + | |||||||
| ( )—29 African Countries | - | ||||||||
| ( )—Greece | + | ||||||||
| ( )—Greece | - | + | + | + | |||||
| ( )—Pakistan | + | + | |||||||
| ( )—Vietnam | - | ||||||||
| Variable | N | Average | St. Dev. | Minimum | Maximum |
|---|---|---|---|---|---|
| 853 | 1.8162 | 12.1190 | 0.0000 | 288.7700 | |
| 853 | 2.0755 | 4.8134 | 0.0018 | 44.9644 | |
| 853 | 0.1281 | 0.1302 | −0.5970 | 0.8944 | |
| 853 | 2.3043 | 12.3775 | 0.0003 | 259.3688 | |
| 853 | 36.3939 | 16.3584 | 2.0000 | 105.0000 | |
| 853 | 0.5393 | 0.4987 | 0.0000 | 1.0000 | |
| 853 | 0.4008 | 0.2190 | 0.0028 | 0.9091 | |
| 853 | 1.8855 | 2.2522 | 0.2319 | 22.3732 |
| Variable | DPS | RCAP | PRO | LIQU | AGE | FAM | DEBT | MV |
|---|---|---|---|---|---|---|---|---|
| 1 | ||||||||
| −0.0564 | 1 | |||||||
| 0.0821 | −0.2185 | 1 | ||||||
| −0.0156 | −0.0185 | −0.036 | 1 | |||||
| 0.0177 | −0.2493 | −0.0228 | −0.0404 | 1 | ||||
| −0.0031 | 0.1092 | 0.027 | 0.0893 | −0.1623 | 1 | |||
| 0.0089 | −0.004 | −0.0056 | −0.2642 | −0.0461 | 0.0883 | 1 | ||
| 0.0741 | −0.1237 | 0.3696 | −0.0471 | 0.0254 | −0.0214 | 0.1238 | 1 |
| Levin, Lin & Chu t | Im, Pesaran and Shin W | ADF-Fisher Chi-Square | PP-Fisher Chi Square | |||||
|---|---|---|---|---|---|---|---|---|
| Stat. | Prob. | Stat. | Prob. | Stat. | Prob. | Stat. | Prob. | |
| −32.5045 | 0.000 | −12.6831 | 0.000 | 522.653 | 0.000 | 643.941 | 0.000 | |
| −65.2300 | 0.000 | −20.1040 | 0.000 | 598.048 | 0.000 | 468.869 | 0.000 | |
| −35.8009 | 0.000 | −8.73764 | 0.000 | 413.820 | 0.000 | 445.834 | 0.000 | |
| −30.5018 | 0.000 | −8.52122 | 0.000 | 424.381 | 0.000 | 430.383 | 0.000 | |
| −48.8429 | 0.000 | −6.68839 | 0.000 | 348.622 | 0.000 | 344.175 | 0.000 | |
| −25.8335 | 0.000 | −6.72648 | 0.000 | 384.629 | 0.000 | 401.920 | 0.000 | |
| Variable | Coefficient | St. Dev. | z |
|---|---|---|---|
| 0.0162 *** | 0.0010 | 15.39 | |
| −3.2348 ** | 1.4464 | −2.24 | |
| 18.9507 *** | 1.5120 | 12.53 | |
| 0.1227 * | 0.0689 | 1.78 | |
| 0.0060 | 0.0285 | 0.21 | |
| 0.1501 | 2.4267 | 0.06 | |
| −5.6688 | 3.5416 | −1.60 | |
| 0.3810 *** | 0.0592 | 6.44 | |
| chi2(8) = 1164.79 | P > chi2 = 0.000 | ||
| Arellano–Bond test AR(1) | z = −1.19 | P > z = 0.236 | |
| Arellano–Bond test AR(2) | z = 0.06 | P > z = 0.951 | |
| Sargan test of overid. restrictions | chi2(21) = 25.72 | P > chi2 = 0.217 | |
| Hansen test of overid. restrictions | chi2(21) = 21.83 | P > chi2 = 0.410 | |
| Hansen test excluding group | chi2(15) = 16.15 | P > chi2 = 0.372 | |
| Difference (H = exogenous) | chi2(6) = 5.68 | P > chi2 = 0.460 | |
| Hansen test excluding group | chi2(19) = 20.57 | P > chi2 = 0.361 | |
| Difference (H = exogenous) | chi2(2) = 1.26 | P > chi2 = 0.534 | |
Share and Cite
Bostanci, F.; Kadioglu, E.; Sayilgan, G. Determinants of Dividend Payout Decisions: A Dynamic Panel Data Analysis of Turkish Stock Market. Int. J. Financial Stud. 2018 , 6 , 93. https://doi.org/10.3390/ijfs6040093
Bostanci F, Kadioglu E, Sayilgan G. Determinants of Dividend Payout Decisions: A Dynamic Panel Data Analysis of Turkish Stock Market. International Journal of Financial Studies . 2018; 6(4):93. https://doi.org/10.3390/ijfs6040093
Bostanci, Faruk, Eyup Kadioglu, and Guven Sayilgan. 2018. "Determinants of Dividend Payout Decisions: A Dynamic Panel Data Analysis of Turkish Stock Market" International Journal of Financial Studies 6, no. 4: 93. https://doi.org/10.3390/ijfs6040093
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Whichever political party is in government after 4 July, they must take action to tackle the causes of hardship in the UK, writes Lucinda Hiam
With less than two weeks to go before the UK’s general election on 4 July, voters have a decision to make. When asked “what are the most important issues facing the country,” the latest YouGov poll reported half of those responding place health (50%) and the economy (51%) at the top. 1 Three-quarters said the UK government should spend more on the NHS. 1 It is easy to see the importance of the economy to voters reflected in the media election coverage. Latest growth figures have been widely reported and mentioned in the speeches made by politicians. Receiving fewer headlines, however, is the coverage of worsening health in the UK, particularly the dire state of many of the social determinants of health including housing, education, and poverty.
The evidence for this is overwhelming, and continues to be forthcoming, including in the past week when a number of stark reports were published that should raise alarm bells for anyone who reads them. First, a report from the Joseph Rowntree Foundation (JRF) detailed how millions of people in Britain are going without “basic essentials” such as food, appropriate clothing, and heating; what they describe as “hardship.” 2 The authors explored the impact of this hardship on those providing services by speaking to and surveying staff in primary schools and community healthcare settings. They found services are “staggering under the weight of hardship,” with the consequences of hardship consuming a huge amount of resources—financial, emotional, time-related—and diverting resources from other essential activities.
Second was a report from the Food Foundation, entitled “A Neglected Generation: Reversing the decline in children’s health,” 3 which detailed the decline in the average height of 5 year olds in the UK, rising obesity, and poor nutrition—reported in The Guardian under the headline “UK children shorter, fatter, and sicker amid poor diet and poverty.”
Third, the Office for National Statistics (ONS) reported the latest data on avoidable mortality (deaths from causes considered preventable or treatable in those aged under 75 years). 4 5 These data showed that avoidable mortality is increasing, including in children, with marked regional inequalities—so much so that while some local authorities have seen an improvement (i.e. a decline) in avoidable mortality since the Conservatives Coalition government came to power in 2010, others have seen a rise, with more people dying from preventable or treatable causes.
Sadly, these three publications are far from unusual. At the start of 2024, the ONS figures for life expectancy showed a decline for both males and females to 2010-2012 levels (and just before for men). 6 In 2023, child mortality figures showed rising child and infant deaths, with significant inequalities, 7 —a concern that had been highlighted repeatedly over the past decade. 8 Beyond these deteriorating summary measures of health, the evidence that action on the social determinants of health is needed has been ample, and practical recommendations for implementation have been available for some time. In 2010, the Marmot review detailed how these issues could be tackled to improve health, but no action was taken. 9 Fourteen years on, the situation is considerably worse. 10 11
At the time of writing, none of the major parties are acknowledging the need to tackle this hardship, nor acknowledge the role of austerity in the dire state of health that the UK is in now. 12 As the JRF report highlights: “No plan to improve schools or healthcare should be taken seriously if it is not supported by an urgent action plan to address hardship.” 2 Whatever government is in power after 4 July, they must first acknowledge the significant problems of poverty, poor housing, and nutrition, particularly for children, and we must continue to implore them to listen to the evidence—and, crucially, to act.
Lucinda Hiam is a member of the BMJ Commission on the Future of the NHS and was a co-author on a BMJ commission paper about the social determinants of health: https://www.bmj.com/content/385/bmj-2024-079389
Competing interests: LH is a general practitioner and public health doctor. She is studying for a DPhil in geography and the environment focused on the change in health outcomes in the UK from 2010 onwards.
Provenance and peer review: commissioned, not externally peer reviewed.
- ↵ The most important issues facing the country. https://yougov.co.uk/topics/society/trackers/the-most-important-issues-facing-the-country .
- ↵ The Joseph Rowntree Foundation. The impact of hardship on primary schools and primary and community healthcare. https://www.jrf.org.uk/deep-poverty-and-destitution/the-impact-of-hardship-on-primary-schools-and-primary-healthcare (2024).
- ↵ The Food Foundation. A Neglected Generation: Reversing the decline in children’s health | Food Foundation. https://foodfoundation.org.uk/publication/neglected-generation-reversing-decline-childrens-health (2024).
- ↵ Office for National Statistics. Avoidable mortality in England and Wales. https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/causesofdeath/bulletins/avoidablemortalityinenglandandwales/latest (2024).
- ↵ Office for National Statistics. National life tables – life expectancy in the UK. https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2020to2022 (2024).
- ↵ National Child Mortality Database. Child death data release 2023. National Child Mortality Database https://www.ncmd.info/publications/child-death-data-2023/ (2023).
- Taylor-Robinson D ,
- Wickham S ,
- ↵ Marmot M, Goldblatt P, Allen J. Fair Society Healthy Lives (The Marmot Review) . https://www.instituteofhealthequity.org/resources-reports/fair-society-healthy-lives-the-marmot-review .
- ↵ Marmot M, Allen J, Boyce T, Goldblatt P, Morrison J. Health Equity in England: The Marmot Review 10 Years On . health.org.uk/publications/reports/the-marmot-review-10-years-on (2020).
- ↵ Build Back Fairer. The COVID-19 Marmot Review - The Health Foundation. https://www.health.org.uk/publications/build-back-fairer-the-covid-19-marmot-review .
- Sowemimo A ,
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Section 1 deals with the theory of dividend policy decisions. Section 2, which is based on a review of relevant literature, introduces the determinants of dividend payout decisions. Section 3 illustrates the study sample, sets out the methodology and defines the basic measures used in the selected panel model.
Review Dr. Monika Assistant Professor Motilal Nehru College (Eve.) University of Delhi I. Introduction Dividend policy is the internal yardstick a company uses to decide how much of the company income it will distribute to the shareholders. Dividend policy is one of the core corporate finance decisions that firms must make.
1. Introduction. The dividend policy, which is the corporate strategy concerning the part of earnings to be reinvested and/or distributed to current stockholders (Bhattacharyya, 2007, Barros et al., 2020), is at the heart of modern finance and financial economics.Hence, making dividend policy decisions is recognized as one of the most critical and challenging issues facing managers today ...
This study employs a systematic literature review approach to review a large sample of studies related to the dividend puzzle. Although the analysis reveals mixed evidence involving the theories and determinants of dividend policy, some determinants appear in numerous studies.
This paper aims at providing the reader with a comprehensive understanding of dividends and dividend policy by reviewing the main theories and explanations of dividend policy including dividend ...
This study systematically reviews the dividend policy literature, combining quantitative and qualitative techniques. We screened a sample of 270 articles retrieved from the Scopus database from 1981 to 2022. We contribute to the literature by identifying six research streams based on bibliometric co-citation analysis: (1) Dividend payment practices, (2) Price-dividend relationship, (3 ...
This article aims to present the evolution of the theoretical framework of dividend policy from irrelevance theory to the life cycle theory and try to suggest a research model on the basis of ...
Dividend decisions, as determined by a firm's dividend policy, are a type of financing decision that affects the amount of earnings that a firm distributes to shareholders versus the amount it retains and reinvests. Dividend policy refers to the payout policy that a firm follows in determining the size and pattern of cash
financing policy decisions, including the dividend decision, considers investment as an exogenous variable, or at least as having a fixed, known distribution. However, recent research (Cornell and Shapiro, 1987; Peterson and Benesh, 1983; Prezas, 1988; and Ravid, 1988) suggests that there are interactions between investment and financing decisions.
not only for corporate decision makers in establishing an appropriate dividend policy but also for shareholders in making investment decisions. 2. (N. Jayantha Dewasiri, 2019)- The purpose of this paper was to identify the determinants of dividend policy in an emerging and developing market. Hence, past dividend decision or pay-
As per the table, 76 articles (51.35percent) are based on the manufacturing sector, i.e., indicated that most of the research had been carried out by considering a sample of manufacturing firms followed by multi-sector (37.17 percent). However, only 17 research studies (11.48 percent) are carried out on the sample of service firms.
Section 4 discusses the results of the empirical research. Section 5 presents the conclusions that have been drawn from the results of the study. 2. Literature review As mentioned before many theories have been propounded to explain dividend decisions and the relationship between dividend policy and the value of a firm.
Dividend policy needs a careful selection of its determinants. Major theoretical advances in dividend policy decision-making have been made over the last few decades. However, different researchers assume that uncertainty, corporate social responsibility (CSR) and stakeholders' interest are the important determinants of dividend policy.
This is done by creating sub-periods within the dataset and observing the changing characteristics of the firms and the possible impact on the dividend payout ratios of the firms. It was found that size and liquidity produce statistically significant results in terms of having some relationship the dividend payout ratios of the firms.
The authors identify past dividend decision, earnings, investment opportunities, profitability, free cash flow (FCF), corporate governance, state ownership, firm size and industry influence as the key determinants of propensity to pay dividends. In addition past dividends, investment opportunities, profitability and dividend premium are ...
understanding of the impacts of the dividend decision mechanism on the financial health of food sector companies. The article is structured as follows. Section 1 deals with the theory of dividend pol-icy decisions. Section 2, which is based on a review of relevant literature, introduces the determinants of dividend payout decisions.
The paper examines the factors influencing dividend payout decisions. Our analysis is based on unbalanced panel data with 799 observations of companies from 15 countries over a period of 14 years.
opportunities and industry-specific factors as the key determinants of the dividend decision. A study on the patterns of dividend policy for nonfinancial Jordanian firms was done by Najjar (2009). He observed that the factors influencing the dividend decision were very similar across the developed and emerging economies.
Al-Malkawi, Husam-Aldin Nizar, Michael Rafferty, and Rekha Pillai. 2010. Dividend Policy: A Review of Theories and Empirical Evidence. International Bulletin of Business ... 2018. "Determinants of Dividend Payout Decisions: A Dynamic Panel Data Analysis of Turkish Stock Market" International Journal of Financial Studies 6, no. 4: 93. https ...
Major theoretical advances in dividend policy decision-making have been made over the last few decades. However, different researchers assume that uncertainty, corporate social responsibility (CSR) and stakeholders' interest are the important determinants of dividend policy. These determinants might help in boosting up
variables such as profitability, the current dividend payout ratio, growth opportunities, and life cycle are found to have no impact on the capital structure decision. Furthermore, LR results show that the significant determinants of dividend payout decision are profitability, growth opportunity, and lagged dividends. These
evalution /analysis of article review for econometrics article review research title: determinants of dividend payout: an empirical study on pharmaceutical. Skip to document. University; High School; Books; ... and investors are also not influenced by the decision of the management of the company regarding the way of giving the.
Research on the determinants of dividend policy has been studied for decades, but there are no aspects that discuss the factors that influence the tendency to pay dividends and dividend payments ...
With less than two weeks to go before the UK's general election on 4 July, voters have a decision to make. When asked "what are the most important issues facing the country," the latest YouGov poll reported half of those responding place health (50%) and the economy (51%) at the top. 1 Three-quarters said the UK government should spend ...
2.1. Integrated reporting assurance. The integrity of non-financial information in IRs are at risk if only the financial part of the report is assured (Kilic, Citation 2018).Without mechanisms that enhance credibility, IRs will fail to achieve their objective to give users dependable information for their decision-making purposes (Kilic, Citation 2018).