Dividend Policy in Regulated Firms

Laura Rondi, Carlo Cambini, Francisca Bremberger and Klaus Gugler ()

MPRA Paper from University Library of Munich, Germany

Abstract: We study the impact of different regulatory contracts of electricity companies on their dividend policy. Using a panel of 106 publicly traded European electric utilities in the period 1986-2011 we link dividend pay-out and smoothing ratios to the implementation of different regulatory mechanisms (cost plus vs. incentive regulation) and also to firm ownership. After controlling for the potential endogeneity of the regulatory mechanism, our results show that electric utilities subject to incentive regulation smooth their dividends less than firms subject to cost plus regulation but also present higher target payout ratios; thus suggesting that incentive regulation leads firms to a dividend policy more responsive to earnings variability and more consistent with efficiency-enhancing pressures. This suggests that when managers are more sensitive to competition-like efficiency pressures following the adoption of incentive regulation, they are more inclined to cut dividends when necessary. These results seem to apply in particular to incentive regulated firms when they are privately controlled.

Keywords: Dividends; Lintner model; regulation; energy industry; price cap; incentive regulation (search for similar items in EconPapers)
JEL-codes: G35 G38 L51 L94 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-eff, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Dividend Policy in Regulated Firms (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48043

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