Determinants of Dividend Payout Policy: Regulated Versus Unregulated Firms

by Atul Saxena

This paper attempts to answer the following questions: What are some of the important determinants of a firm's dividend payout policy? What is the regulator's role with respect to this policy? Do regulated firms exhibit dividend payout policies that are systematically different from those of unregulated firms? A statistical model is developed to explain a firm's dividend payout policy. Several financial variables recommended in the relevant finance literature are used as explanatory variables. A cross-sectional regression analysis is done with a sample of regulated and unregulated firms randomly selected from the ValueLine Investment Survey to empirically test the model. For the unregulated sub-sample, results are compared with earlier studies. The usual statistical tests are carried out.

The main conclusions of the paper are that a firm's dividend payout ratio is inversely related to its past growth rate, future growth rate, systematic risk, and the percentage of common stocks held by insiders. However, the relationship is positive(direct) with the number of common stockholders. Moreover, some of the determinants of dividend policy are different for regulated and unregulated firms. Specifically, the percentage of common stock held by insiders, and expected future growth rate, do not play a key role in a regulated firm's payout ratio.

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