Corporate Dividend Policy in Thailand: Theory and Evidence

56 Pages Posted: 7 Jan 2014

See all articles by Richard J. Fairchild

Richard J. Fairchild

University of Bath - School of Management

Yilmaz Guney

University of Hull

Yordying Thanatawee

Burapha University - Graduate School of Commerce

Date Written: January 7, 2014

Abstract

This paper examines dividend changes in an emerging market: Thailand. We begin by considering the possible effects of the Thai corporate environment on dividend policy. We develop a theoretical model that considers the relationship between the strength of investor power and dividends in an agency cost/free cashflow framework. This allows us to consider the conditions for the outcome (positive relationship) or substitute (negative relationship) models, as discussed by La Porta et al. (2000). Our model also allows us to consider the expropriation hypothesis, in which the presence of large controlling shareholders may actually reduce outside investor power, leading to lower dividends. We then turn to our empirical analysis. Employing a large sample of companies that changed dividends in Thailand during the period 1996-2009, we test for the signalling, free cashflow and life-cycle hypotheses. A further contribution of our analysis is that we consider the impact of investor power and ownership on dividends in Thailand. Overall, we find little support for the signalling hypothesis, but we find considerable support for the free cashflow and life-cycle hypotheses. Our analysis of ownership variables suggest that increasing investor power (for example, high ownership concentration together with the presence of domestic institutional ownership) results in higher dividends, in support of the outcome model, rather than the substitution or expropriation models.

Keywords: Dividend change, earnings, profitability, investment, ownership structure, Thai firms

JEL Classification: G35

Suggested Citation

Fairchild, Richard J. and Guney, Yilmaz and Thanatawee, Yordying, Corporate Dividend Policy in Thailand: Theory and Evidence (January 7, 2014). International Review of Financial Analysis, Vol. 31, No. __, 2014, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2375648

Richard J. Fairchild

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
01225 323456 (Phone)
01225 323902 (Fax)

Yilmaz Guney (Contact Author)

University of Hull ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://https://www.hull.ac.uk/faculties/fblp/hubs.aspx

Yordying Thanatawee

Burapha University - Graduate School of Commerce ( email )

169 Longhadbangsaen Road
T.Sansuk
Maung, Chonburi 20131
Thailand

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