The Corporate Dividend policy, also called the Dividend Puzzle (Black, 1976) has always beensubjected to a lot of studies since, at least, the paper of Modigliani and Miller in 1961. The work ofthese authors stated that, in a frictionless world, when the firm has a constant investment policy,its dividend payout policy will have no consequences on the wealth of the shareholder. Indeed, theirreasoning is that higher dividend payments lead to lower retained earnings and capital gains, andinversely, leaving the total wealth of the shareholders unchanged. But, as we can see in thenewspapers, corporations are following highly deliberate dividend payout policies. This is thusraises a question: How are firms choosing their dividend policies?
In order to answer to this question, we will first briefly study the history on the determinantsof the Corporate Dividend Policy and then conduct an investigation on this topic by analyzing twoparticular sectors of the London Stock Exchange: ‘Health care equipment and services' and‘Food and drugs retailers'.
[...] So, the size does 10 not seem to have a big impact on the DPR, but, even if it is at a small degree, for FDR, bigger companies distribute more dividends and vice versa for HCES. Conclusion This statistical investigation has helped us to understand better the determinants of the corporate dividend policy. The two sectors studied (“Food and drug retailers” and “Health care equipment and services”) were expected a priori to be completely different because of their particular profile but with coefficient signs going the same way. Nevertheless, de facto out of the 5 coefficients were found with opposed signs for the companies. [...]
[...] It is here at So, we find ourselves in a scenario where the proportion of the variation in the dependent variable is not well explained by the explanatory variables. We will be able to see that on the coefficients that most of time go against common sense. When considering the size factor for this sector, we can note it is slightly negative 0.12 Thus, for the Food and drugs retailers sector, the size of the firm has only a poor impact on the dividend distributed. [...]
[...] Size: Food and drugs retailers Tesco PLC Log10(revenue) Greggs PLC 10.76 Health care Nestor Health Smith and Nephew Sainsbury PLC Log10(revenue) Consord. Med b. Profitability: Foods and drugs retailers Tesco Sainsbury Greggs EBIT Total Assets E/A Health care Nestor Health Smith and N ephew Consord. Med. EBIT - Total Assets E/A - c. Investment opportunities: Foods and drugs retailers Tesco Sainsbury Greggs dA Total Assets dA/A Health care Nestor Health Smith and Nephew Consord. Med. dA -1142824 - -33681803,5 -607496,4 -5236000 -1944000 Total Assets dA/A - 0.0092 0.2755 - 0.0036 0.05652291 - 0.01986288 d. [...]
[...] 259-270. Black and Fisher (1976) The dividend puzzle, Journal of Portfolio Management, Volume pp. 5-8. Brennan M. (1970) Taxes, Market Valuation, and Corporate Financial Policy. National Tax Journal, December 1970, pp. 417-427. Casey K.M., Dickens R.N., Newman J.A. (2002) Bank Dividend Policy: Explanatory Factors. Quarterly Journal of Business & Economics, Volume 41 (Issue 1 & 2). Clatworthy and Peel (1997) The Characteristics of New Equity Markets for SMEs', Journal of Small Business and Enterprise Development, Volume pp. [...]
[...] (2008) Dividend policy in the absence of taxes. Journal of International Finance and Economics, Volume 8 (Issue pp. 111-125. Baker K., Farrelly G. and Edelman R. (1985) A Survey of Management Views on Dividend Policy. Financial Management, Autumn 1985, pp. 78-84. Bhattacharya S. (1979) Imperfect Information, Dividend Policy, and the Bird in the Hand Fallacy. Bell Journal of Economics, Spring 1979, pp. [...]
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