Determinants of dividend payout of construction companies: a panel data analysis

Abstract

Purpose This paper aims to examine the determinants of the dividend policy of the construction companies in India. Design/methodology/approach Data from 2011 to 2016 (six years) of 45 listed construction companies in India are collected, and a strong balanced panel is created. Dividend per share is dependent variable, and profitability, unstable earnings, institutional holding, cash flow, tangibility, liquidity, growth opportunities, age of the firm, life cycle, leverage, size of firm and taxation are explanatory variables. The panel is tested for stationarity and finally fixed and random-effect panel regression model with robust estimation option is performed. Findings The random effect model is found fit with an R2 of 62 per cent, and profitability, life cycle and size of the firm show a significant positive effect on dividend payment. Cash flow shows a negative significant relationship, indicating the presence of agency problem. Rest of the variables indicated an insignificant relationship. Research limitations/implications The study is carried out on a small sample of 45 companies with data of only six years. Further, there may be behavioral and psychological factors that drive the decision to declare dividend. Those factors have not been considered in present study. Despite considerable efforts, the author could not find more studies specific to the construction sector. Hence, the variables identified in the present study are more generic, even though a few sector-specific studies have been included. Originality/value The dividend policy determinants for the construction sector in India are investigated, and a comprehensive model based on 12 explanatory variables is tested to find the drivers of dividend payout in Indian construction companies. From the investor’s point of view, the sector has immense potential in terms of dividend as well as capital appreciation. Therefore, the study can be useful to the investors to understand the drivers of dividend payout in the construction sector. It can also be crucial for companies to create an appropriate dividend policy so as to attract and retain investors. The study contributes significantly to the existing body of knowledge by recommending the salient drivers of dividend payout in the construction sector based on a comprehensive dataset and using robust methodology.

Firm Level Determinants and Dividend Policy in Pakistan

“…Profitability is positive significant factor of dividend policy of non-financial Pakistani listed firms. The finding is consistent with the earlier studies [24][25][26]. Findings of profitability supports signaling theory [35,36] that when firms are more profitable, it will pay more dividend to investors.…”

“…As panel data suffer from the issue of heteroskedasticity thus, the robust estimation confirms that data set are free from issue of heteroskedasticity [29]. Hence, to mitigate the autocorrelation and heteroskedasticity in panel, robust estimates are used [26]. To diminish the abnormality of data set, this research took natural logarithm of variables.…”

Dividend payment policy across food industry companies – the case of European economies

“…Furthermore, dividend growth becomes strongly predictable as it correlates with earnings yields [Møller, Sander 2017], which depend on the industry's characteristics. A positive relationship was verified according to the fixed effect and random effect model, consistent with most literature studies [Singla, Samanta 2018].…”

Determinants of Dividend Policy of Real Estate, Property, and Building Construction Companies Listed in IDX with Unbalanced Panel Data Approach

“…In this study, agency cost was measured based on free cash flow which allows cash to be distributed to shareholders and creditors after substituted by total investment on fixed assets, new products, and working capital to fund ongoing operational activities. Agency cost negatively affects dividend policy on free cash flow where agency cost is incurred (Arfan & Maywindlan, 2013;Sharma & Bakshi, 2019;Singla & Samanta, 2018).…”

“…Research conducted by Singla & Samanta (2018) examined the factors presumed to influence construction companies' dividend policy in India. The presumed factors are profitability, unstable earnings, institutional holding, cash flow, tangibility, liquidity, growth opportunities, the firm's age, life cycle, leverage, size of the firm, and taxation.…”