Determinants of Dividend Payments
International Journal of Applied Accounting and Finance, Vol. 1, No. 1, 40-46, 2010
7 Pages Posted: 23 Jun 2011 Last revised: 24 Jun 2011
Date Written: August 1, 2010
This paper explores the contribution of various financial measures in explaining the variability in a firm’s dividend payments. Ordinary least squares analysis of data from 2003 to 2007 shows that approximately 71% of the variability in dividend payments is explained by the firm’s expected growth rate of revenues, earnings before interest and tax, market debt to capital ratio, and effective tax rate. The findings support theories in the literature that dividends paid by a firm decrease with higher expected growth in revenues, lower earnings before interest and tax, higher debt service requirements, and higher effective tax rates.
Keywords: Dividend Payments, EBIT, Market Debt to Capital Ratio, Expected Growth Rate in Revenues, Effective Tax Rate
JEL Classification: G30, G35, G39
Suggested Citation: Suggested Citation