Factors Affecting Dividend Policyin an Emerging Capital Markets (ECM’s) Country: Theoratical and Empirical Study
International Journal of Economics, Finance and Management Sciences
Volume 6, Issue 4, August 2018, Pages: 139-152
Received: May 20, 2018; Accepted: Jun. 19, 2018; Published: Jul. 7, 2018
Views 440      Downloads 58
Authors
Mohamed Masry, Department of Accounting and Finance, College of Management and Technlogy, Arab Academy for Science and Technology (AAST), Alexandria, Egypt
Ahmed Sakr, Department of Accounting and Finance, College of Management and Technlogy, Arab Academy for Science and Technology (AAST), Alexandria, Egypt
Marwan Amer, Department of Accounting and Finance, College of Management and Technlogy, Arab Academy for Science and Technology (AAST), Alexandria, Egypt
Article Tools
Follow on us
Abstract
The dividend decision is taken after careful consideration of a number of factors, such as legal and financial. This is because it is impossible to develop a dividend policy set that applies to all companies. The decision about dividends differs from company to company in the light of company considerations. The dividend is partly dependent on the current earning of the company and partly on the dividend from the previous year. Therefore, the main changes in profit with the existing rate of dividends were the main determinants of corporate dividend policy. The research showed that the profitability aspects and their indicators for each of the return on equity return on asset, and earning per share without dividend yield, have the greatest impact on share price performance, followed by the financial risks aspect of financial leverage without gains variation which comes in the second rank. Then, the factor of size, investment opportunity for each of investment opportunity and net profit standard deviation without assets volume comes in the third place and finally, the liquidity and signals factor represented in the cash ratio without signals index. While the profitability aspects and its indicators for each of the return on equity, return on asset, earning per share without dividend yield are the most effective on pay-out ratio (first rank), followed by financial risks aspect and gains variation coefficient without financial leverage in the second rank, then the liquidity factor of index without the signals in the third place and finally size and investment opportunity factor for each of investment opportunity and assets volume without net profit standard deviation.
Keywords
Dividend Policy, Emerging Capital Markets (ECM’s), Profitability, Egyptian Stock Exchange
To cite this article
Mohamed Masry, Ahmed Sakr, Marwan Amer, Factors Affecting Dividend Policyin an Emerging Capital Markets (ECM’s) Country: Theoratical and Empirical Study, International Journal of Economics, Finance and Management Sciences. Vol. 6, No. 4, 2018, pp. 139-152. doi: 10.11648/j.ijefm.20180604.12
Copyright
Copyright © 2018 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
References
[1]
Rahmadia FITRI, Rembulan&Nadratuzzaman HOSEN, Muhamad& MUHARI, Syafaat. (2016). Analysis of Factors that Impact Dividend Payout Ratio on Listed Companies at Jakarta Islamic Index. International Journal of Academic Research in Accounting, Finance and Management Sciences.6. 10. 6007/IJARAFMS/v6-i2/2074.
[2]
Masry, M. (2016b). The Impact of Institutional Ownership on the Performance of Companies Listed In the Egyptian Stock Market. IOSR Journal of Economics and Finance (IOSR-JEF), 7, 5-15.
[3]
Masry, M. (2017). The Impact of Technical Analysis on Stock Returns in an Emerging Capital Markets (ECM’s) Country: Theoretical and Empirical Study. International Journal of Economics and Finance, 9, 91-107. https://doi.org/10.5539/ijef.v9n3p91
[4]
Masry, Mohamed and El-Menshawy, Heba (2018). ‘The Impact of Unsystematic Risk on Stock Returns in an Emerging Capital Markets (ECM’s) Country: An Empirical Study, International Journal of financial Research. 9(1), pp. 189-202. https://doi.org/10.5430/ijfr.v9n1p189
[5]
Barclay, Michael J., Clifford W. Smith, and Rose L. Watts, 1995, “The determinants of Corporate Leverage and Dividend Policies”, Journal of applied corporate finance 7, 4-19.
[6]
Dalton, F and Pointon, J (1997) An international study of dividend policy: some preliminary results, British accounting association, Ashgate publishing Ldt, pp 241-256.
[7]
Eaterbrook, F. H., 1984, op. cit.
[8]
Jensen, G., Donald R., Solberg, P., and Zorn, T. S., 1992, op. cit.
[9]
Easterbrook, F. H., 1984. Two Agency-Cost Explanations of Dividends. The American Economic Review, 74(4), pp. 650-659.
[10]
Moh'd, M. A., Perry, L. G. and Rimbey, J. N. (1995), An Investigation of theDynamic Relationship between Agency Theory and Dividend Policy, FinancialReview, Volume 30, 2, May 1995, pp 367-385?
[11]
Jensen, M. C., 1986. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 76(2), pp. 323-329.
[12]
Rozeff, M. S., 1982. Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios. Journal of Financial Research, Vol. 5, No. 3, pp. 249-259.
[13]
Lintner, J., (1956). Distribution of Income of Corporations among Dividends, Retained. Earning and Taxes, American Economic Review (May), pp. 97-113.
[14]
Han, Ki C., Suk Hun Lee, and David Y. Suk, 1999, “Institutional Shareholders and Dividends”, Journal of financial and Strategic Decisions 12, 53-62.
[15]
Fama, E. F. & French, K. R. (2002). Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay? Journal of Financial Economics 60, 3-43.
[16]
Pandey, I. (2001). The Expected Stock Returns of Malaysian Firms: A Panel Data Analysis. IIMA Working Paper No 2001-09-01.
[17]
Aivazian. V., Booth. L. and Cleary. S. (2003), Dividend Policy and the Organization of Capital Markets, Journal of Multinational Financial Management, Volume 13, pp 101-121.
[18]
Myers, S. C., 1984. The Capital Structure Puzzle. The Journal of Finance, 39(3), pp. 574-592.
[19]
Reeding, L. S. (1997) Firm Size and Dividend Payouts, Journal of Financial Intermediation 6, 224-248.
[20]
Fama, E. F. and K. R French (2001). Disappearing Dividends: Changing Firm Characteristics or lower Propensity to Pay? Journal of Financial Economics, Vol. 60, pp. 3-43.
[21]
Deshmukh, S., 2003. Dividend Initiations and Asymmetric Information: A Hazard Model. Financial Review, 38(3), pp. 351-368.
[22]
Miller, M. H. & Modigliani, F., 1961. Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), pp. 411-433.
[23]
Elston, Julie Ann, 1996, “Dividend Policy and Investment: Theory and Evidence from US Panel Data”, Managerial and Decision Economics 17, 267-275.
[24]
Jensen, M., 1986, “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers”, American Economic Review, Vol. 76, pp. 323-329
[25]
Lang, L. H. P. &Litzenberger, R. H., 1989. Dividend announcements: Cash flow signalling vs. free cash flow hypothesis? Journal of Financial Economics, 24(1), pp. 181-191.
[26]
Jensen, G. R., Solberg, D. P. & Zorn, T. S., 1992. Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies. The Journal of Financial and Quantitative Analysis, 27(2), pp. 247-263.
[27]
Alli, K. L., Khan, A. Q. & Ramirez, G. G., 1993. Determinants of Corporate Dividend Policy: A Factorial Analysis. Financial Review, 28(4), pp. 523-547.
[28]
Grullon, G. &Michaely, R., 2002. Dividends, Share Repurchases, and the Substitution Hypothesis. The Journal of Finance, 57(4), pp. 1649-1684.
[29]
Constand et al. 1991.
[30]
Glen, Jack D., YannisKarmokolias, Robert R. Miller, and Sanjay Shah, 1995, “Dividend Policy and Behavior in Emerging Markets”, Discussion Paper No. 26, (International Financial Corporation).
[31]
Rozeff, M. S. (1982), Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios, Journal of Financial Research, Volume 5, Fall, pp 249-259.
[32]
Jensen, G. R., D. P. Solberg, and T. S Zorn (1992). Simultaneous determination of insider ownership, debt, and dividend policies, Journal of Financial and Quantitative Analysis 27, 247–263.
[33]
Gulger, K. &Yurtoglu, B. B. (2003) corporate governance & dividend payout policy in Germany. European Economic Review 47, 731-758.
[34]
Chang, R. P. and Rhee, S. G. (1990), The Impact of Personal Taxes on Corporate Dividend Policy and Capital Structure Decisions, Financial Management, Summer 1990, pp 21- 31.
[35]
Black, F. (1976), The Dividend Puzzle, the Journal of Portfolio Management, winter issue, pp 5-8.
[36]
Fazzari, Steven M., R. Glenn Hubbard, and Bruce C. Petersen, 1988, “Financing Constraints and Corporate Investment”, Brooking Papers on Economic Activity 1, 141-195.
[37]
Theobald, M. (1978), Intertemporal Dividend Models -A Empirical Analysis Using Recent UK Data, Journal of Business Finance and Accounting, Volume 5, 1 Spring 1978, pp 123-135.
[38]
Lawson, G. H. and Stark, A. W. (1981), Equity Values and inflation: Dividends and Debt financing, Lloyds Bank Review, 139, January 1981.
[39]
Kania, S. L. and Bacon, F. W. (2005), what factors motivate the corporate dividend. Decision, ASBBS E-Journal, Volume 1, Number 1, 2005.
[40]
Miller, M. and Modigliani, F. (1961), Dividend Policy, Growth and the Valuation of Shares, Journal of Business, Volume 34, Number 4, October 1961, pp. 411-433.
[41]
Borokhovich, K. A; Brunarski, K. R; Harman, Y and Kehr, J. B (2005), Dividends, Corporate Monitors and Agency Costs, The Financial Review, Volume 40, Number 1, February 2005, pp. 37-65(29), Blackwell Publishing.
[42]
Edwards, J., Mayer, C., Pasherdes, P., and Poterba, J. (1985), The Effects of Taxation on Corporate Dividend Distributions, Institute for Fiscal Studies Working Paper number 78u, J ne 1985.
[43]
Olson, G. T and McCann, P. D. (1994), the Linkages between Dividends and Earnings, Financial Review, Volume 29, 1, February 1994, pp 1- 22.
[44]
Asquith, P. and Mullins Jnr, D. W. (1983), The Impact of Initiating Dividend Payments on Shareholders' Wealth, Journal of Business, Volume 51, Issue 1, pp 77-96.
[45]
Benartzi, S., Michaely, R., Thaler, R. (1997), Do Changes in Dividends Signal the Future or the Past? The Journal of Finance, Volume 52, Number 3, pp1007-1034.
[46]
Lintner, John, 1956, “Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes”, the American Economic Review 46, 97-113.
[47]
Davidson, i. (2002), corporate dividend policy, International encyclopedia of business and management, Thomas learning 2002, pp 1459–1466.
[48]
Grullon, G., Michaely, R., Benartzi, S. and Thaler, R. (2005), Dividend Changes Do Not Signal Changes in Future Profitability, The Journal of Business, Volume 78, 2005, pp 1659-1682.
[49]
Denis, D. J. & Osobov, I., 2008. Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), pp. 62-82.
[50]
Adaoglu, Cahit, 2000, “Instability in the Dividend Policy of the Istanbul Stock Exchange (ISE) Corporations: Evidence from an Emerging Market”, Emerging Markets Review 1, 252-270.
[51]
DeAngelo, H., DeAngelo, L. & Stulz, R. M., 2006. Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial Economics, 81(2), pp. 227-254.
[52]
Yoon, P. S. & Starks, L. T., 1995. Signaling, investment opportunities, and dividend announcements. Review of Financial Studies, 8(4), pp. 995-1018.
[53]
Dasilas, A. &Leventis, S., 2011. Stock market reaction to dividend announcements: Evidence from the Greek stock market. International Review of Economics & Finance, 20(2), pp. 302-311.
[54]
Walsh, C. (2008). Key Management Ratios 4th ed. London; Pearson Education.
ADDRESS
Science Publishing Group
548 FASHION AVENUE
NEW YORK, NY 10018
U.S.A.
Tel: (001)347-688-8931