Dividend policy
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Keywords
Dividend smoothing ; Dividend policy ; Dividend forecast errors ; Capital structure ; Credit rating change announcements ; Financing decisions ; RegulationAbstract
Since Lintner (1956), dividend policy has remained a central topic in corporate finance, with a large body of literature examining its determinants and implications. This dissertation contributes to that literature by exploring how dividend policy is influenced by the information content of credit rating changes, corporate financing decisions, and regulatory environment. Focusing on both regulated and non-regulated firms in the US and Europe, the dissertation is structured into three interconnected chapters, each addressing a distinct aspect of dividend behavior.
Chapter Two investigates the impact of credit rating change announcements on dividend policy. While prior studies have explored how firms react to credit rating events, the specific impact of news disclosed in credit rating change announcements on dividend policy remains largely unexplored. Using a sample of consistently dividend-paying firms from 1995 to 2019, this doctoral dissertation classifies rating downgrades as “bad,” “good,” or “systemic,” and examines their effects alongside upgrades associated with strong performance. The findings reveal that firms smooth dividends more following “good” downgrades, and less after “bad” or “systemic” downgrades and upgrades. Dividend forecast errors further support these results, being positively associated with all rating changes except “good” downgrades.
Chapter Three shifts focus to the role of financing decisions in shaping dividend smoothing behavior. This doctoral dissertation empirically investigates whether and to what extent firms follow a dividend smoothing behaviour in corporate financing events using a sample of US firms over the period 1960 – 2020. Specifically, it identifies four types of corporate financing activities, namely, equity and debt issues under financing deficits, and equity repurchases and debt redemptions under financing surpluses. The evidence shows that firms smooth dividends more during debt issuance and equity repurchases, and less during equity issuance and debt reductions. Dividend forecast error analysis reinforces this asymmetry, offering new insights into how financing strategies interact with payout policies.
Chapter Four explores dividend policy in the context of regulatory environments, focusing on utility and financial firms across the UK, France, Germany, and Italy between 2010 and 2020. Drawing on the notion that regulatory oversight reduces information asymmetry, this chapter analyzes how sector-specific regulatory factors influence dividend decisions. The analysis distinguishes between utilities—typically characterized by agency conflicts and regulatory pressure for stable payouts—and financial institutions, which have faced evolving regulatory constraints since the financial crisis. The results reveal notable differences in dividend smoothing and payout levels between the two sectors, highlighting how regulation, industry dynamics, and legal frameworks jointly shape dividend behavior in Europe.
This doctoral dissertation contributes to the corporate finance literature by offering new perspectives on shaping dividend policy.