Dividend Policy in Regulated Firms

46 Pages Posted: 13 Jun 2013

See all articles by Francisca Bremberger

Francisca Bremberger

Vienna University of Economics and Business

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Klaus Peter Gugler

Vienna University of Economics and Business; European Corporate Governance Institute (ECGI)

Laura Rondi

Politecnico di Torino & Ceris/CNR

Date Written: June 11, 2013

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

JEL Classification: G35, G38, L51, L94

Suggested Citation

Bremberger, Francisca and Cambini, Carlo and Gugler, Klaus and Rondi, Laura, Dividend Policy in Regulated Firms (June 11, 2013). Available at SSRN: https://ssrn.com/abstract=2277595 or http://dx.doi.org/10.2139/ssrn.2277595

Francisca Bremberger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy
+390115647292 (Phone)
+390115647299 (Fax)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Klaus Gugler

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

HOME PAGE: http://www.wu.ac.at/iqv/mitarbeiter/gugler

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Laura Rondi (Contact Author)

Politecnico di Torino & Ceris/CNR ( email )

Department of Management
Corso Duca degli Abruzzi, 24
Torino, 10129
Italy
+39 011 5647232 (Phone)

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