Determinants of UK companies’ dividend policy

  • 301 Views
  • 90 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This study examines the major factors influencing UK companies listed on the Financial Times Stock Exchange (FTSE) 100 stock market's dividend policy (as determined by the dividend payout ratio) over 32 years, from 1990 to 2022. The dividend premium and free cash flow components make up the catering dividend. The outcomes of a wide range of panel data analysis regressions, such as Generalized Method of Moments (GMM) and Two-Stage Least Squares (2SLS) regressions, clearly show that the catering dividend significantly impacts UK firms' dividend policy. On the other hand, the dividend policy benefits from the dividend premium, which increases it by 12% to 17% on average. Free cash flow, on the other hand, has a negligible negative impact on the dividend policy by just 5%. It is crucial to mention that this outcome varies depending on the models and regression techniques used. Furthermore, this study emphasizes how important it is for a firm's size and profitability to play a key role in determining how it will implement its dividend policy. Financial leverage also becomes important since a company's dividend payment ratio decreases when it relies more heavily on debt in its capital structure. By using GMM and 2SLS regressions, this study carefully tackles the endogeneity issue, and the results hold up even when the endogeneity effect is reduced. Ultimately, this study emphasizes how important dividend catering components are in guiding UK companies' dividend policies, arguing that CEOs and legislators should pay more attention to this.

view full abstract hide full abstract
    • Table 1. Descriptive statistics
    • Table 2. Breusch-Pagan LM test for random effects versus OLS
    • Table 3. Pooled OLS estimator
    • Table 4. Hausman test for fixed versus random effects model
    • Table 5. Fixed effects or within estimator
    • Table 6. First-differences estimator
    • Table 7. Recovering individual-specific effects
    • Table 8. Endogeneity test
    • Table 9. Instrumental variables (2SLS) regression
    • Table 10. GMM weight matrix: Robust
    • Table 11. First-stage regression of weal instrument
    • Conceptualization
      Munther Momany, Omar Al-Bataineh
    • Methodology
      Munther Momany, Khaled Bataineh
    • Project administration
      Munther Momany, Khaled Bataineh, Omar Al-Bataineh
    • Supervision
      Munther Momany, Omar Al-Bataineh
    • Writing – original draft
      Munther Momany, Khaled Bataineh
    • Writing – review & editing
      Munther Momany, Omar Al-Bataineh
    • Data curation
      Khaled Bataineh
    • Formal Analysis
      Khaled Bataineh
    • Validation
      Omar Al-Bataineh