On the Determinants and Dynamics of Dividend Policy

Abstract

The authors study the dividend policy of 48 firms listed on the Tunisian Stock Exchange during the period 1996-2002. The study tests whether or not managers of Tunisian listed firms smooth their dividends. Moreover, the study outlines the main determinants that may drive the dividend policy of Tunisian quoted firms. To answer the first question, we use Lintner's model in a dynamic setting. The results clearly demonstrate that Tunisian firms rely on both current earnings and past dividends to fix their dividend payment. However, the study shows that dividends tend to be more sensitive to current earnings than prior dividends. To find out the determinants of dividend policy, dynamic panel regressions have been performed. First, profitable firms with more stable earnings can afford larger free cash flows and thus pay larger dividends. Furthermore, they distribute larger dividends whenever they are growing fast. However, neither the ownership concentration nor the financial leverage seems to have any impact on dividend policy in Tunisia. Also, the liquidity of stock market and size negatively impacts the dividend payment. The results are somewhat robust to different specifications. Copyright (c) International Review of Finance Ltd. 2007.

Investor protection and dividend policy: The case of Islamic and conventional banks

“…In line with prior empirical research, I use similar control variables. Profitability has a positive association with dividend payouts (Akpomi and Nnadi, 2008;Al-Malkawi, 2007;Ben Naceur et al, 2006;Bodla et al, 2007;Fama and French, 2001;Gupta and Walker, 1975;Han et al, 1999;Jensen et al, 1992;Lee, 2009). I use the one-year change in earnings as a proxy for profitability rather than using returns on assets or equity in order to avoid endogeneity problems between profitability and corporate governance.…”

Dividend Policy Decision across African Countries

“…Naceur, Goaied and Belanes, (2006), and Reddy and Rath (2005) found that highly profitable firms with more stable earnings can manage larger cash flows, and because of this they pay larger dividends. Ahmed and Javid (2008) also maintain that firms with fast growth distribute the larger dividends in order to attract investors.…”

“…Another reason suggested by Chazi, Terra, and Zanella (2010), Myers and Majluf (1984) and Miller and Rock (1985) is that high financial burdens are faced by firms in Africa, and consequently they prefer to finance a firm"s expansion with their low profit margin and retaining earnings which may affect their capability to pay high dividends. Naceur et al (2006) mentioned that that low and stable dividend payout policy in Africa could mean that the firms are not expanding very fast to facilitate high retain earnings to support shareholders, since the available money is used for firm"s growth opportunities. Evbayowieru (2011) p. 62 stated that "capital gain seekers welcome low dividend payout policy because of low taxation" and scrip issue benefits".…”

Does Ownership Structure Matter for Dividend Yield? Evidence from the Hong Kong Stock Exchange

“…It should be noticed that different approaches were used to calculate or to define profitability, and each has its own limitations. Naceur, Goaied and Belanes (2006) concluded that highly profitable firms with more stable earnings could afford larger free cash flows and thus pay out larger dividends. They solely use ROA, which is calculated by net income/total assets to measure profitability.…”

“…More recently, Brealey and Myers (2005) listed dividends as one of the top 10 important unresolved problems in finance. It seems that dividend policy is one of the most debated topics in finance literature and still maintains its prominent position (Naceur, Goaied & Belanes, 2006). More recently, Allen and Michaely (2003) concluded that before reaching a consensus, much more empirical and theoretical research on dividends is required.…”