Dividend Policy in Regulated Firms

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

No 2013/53, RSCAS Working Papers from European University Institute

Abstract: We study the impact of different regulatory and ownership regimes on the dividend policy of regulated firms. Using a panel of 106 publicly traded European electric utilities in the period 1986-2010, we link payout and smoothing decisions to the implementation of different regulatory mechanisms (cost plus vs. incentive regulation) and to firm ownership (state vs. private). After controlling for the potential endogeneity of the regulatory mechanism, our results show that utilities subject to incentive regulation smooth their dividends less than firms subject to cost-based regulation and present higher impact effects and target payout ratios. This suggests that when managers are more sensitive to competition-like efficiency pressures following the adoption of incentive regulation, they adopt a dividend policy more responsive to earnings variability and more consistent with optimal cash management. These results, however, apply only to private utilities. If the state still has ultimate control, smoothing of dividends remains irrespective of the regulatory mechanism. It seems that corporate governance (i.e. state control) trumps regulation when it comes to dividend payout policy.

Keywords: Dividends; Lintner model; incentive regulation; electricity (search for similar items in EconPapers)
JEL-codes: G35 G38 L51 L94 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-cdm, nep-cfn, nep-eff, nep-eur and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Dividend Policy in Regulated Firms (2013)
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