Determinants of Corporate Dividend Policy: A Factorial Analysis

Kasim L. Alli · A. Qayyum Khan · Gabriel G. Ramı́rez

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Corporate Finance and Governance Financial Markets and Investment Strategies Corporate Taxation and Avoidance

Abstract

Abstract This paper re‐examines the dividend policy issue by conducting a simultaneous test of the alternative explanations of corporate payout policy using a two‐step procedure that involves factor analysis and multiple regression. Several new proxies for theoretical attributes that have appeared in the literature are introduced, including the role of managerial dimensions in determining dividend policy. Strong support is found for the transaction cost/residual theory of dividends. pecking order argument, and the role of dividends in mitigating agency problems. Strong support is also found for the role of managerial consideration in affecting the firm's payout policy; specifically, firms that maintain stable dividend policies and firms that enjoy financial flexibility pay higher dividends. The results appear to support the tax clientele argument.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1961Dividend Policy, Growth, and the Valuation of Shares 1984Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have 1988The Determinants of Capital Structure Choice 1985Dividend Policy under Asymmetric Information 1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES 1979On financial contracting

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2013Effect of Managerial Ownership, Financial Leverage, Profitability, Firm Size, and Investment Opportunity on Dividend Policy and Firm Value 1998Dividend Policy and Cash‐Flow Uncertainty 1999Agency problems and the simultaneity of financial decision making 2013Does corporate governance explain dividend policy in Sub‐Saharan Africa?2000DETERMINANTS OF CORPORATE DIVIDEND POLICY: A SURVEY OF NYSE FIRMS

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