Why do Firms Change Their Dividend Policy?

Ijaz Ali, Ali Gohar and Omar Meharzi
Additional contact information
Ijaz Ali: Fahad Bin Sultan University Tabuk, Saudi Arabia,
Ali Gohar: Fahad Bin Sultan University Tabuk, Saudi Arabia,
Omar Meharzi: University of Grenoble, France.

International Journal of Economics and Financial Issues, 2017, vol. 7, issue 3, 411-422

Abstract: Prior literature has largely documented managers' preference of sticking to their dividend policy. This perceived inflexibility of managers makes a dividend policy switch an important milestone in a firm's life. Blau and Fuller (2008) state that existing theories do not help understand why some firms never pay dividends, while others consistently pay them. This paper examines the factors that motivate managers to change their long term dividend policy. By employing univariate and multivariate tests and propensity score matching method, the authors provide empirical evidence consistent with the life cycle theory of dividends and Litner's proposition, and inconsistent with the signaling theory of dividends. Unlike previous studies, by investigating the characteristics of dividend policy switchers, this study examines factors affecting firms' long term dividend policy. In addition, by analyzing both positive and negative switchers, this study helps to determine whether the same factors are responsible for dividend abandonments and initiations.

Keywords: Dividend Policy; Signaling Theory of Dividends; Life Cycle Theory of Dividends (search for similar items in EconPapers)
JEL-codes: G35 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econjournals.com/index.php/ijefi/article/download/4341/pdf (application/pdf)
http://www.econjournals.com/index.php/ijefi/article/view/4341/pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2017-03-54

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().