Dividend Policy in Regulated Firms

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.

What drives the dividend decisions in BRICS countries?

“…Much of the literature focuses on the role of the ownership structure. Several studies suggest that state-owned enterprises smooth dividends more than private-owned enterprises (Bremberger et al, 2013;Gugler, 2003). Moreover, Gonzalez et al (2017) argued that in the case of Latin American markets, companies with more concentrated ownership structures are more likely to pay dividends, which stays in contrast to the research on the UK companies (Khan, 2006).…”

“…In several papers, a group of countries was analysed, i.e. 28 countries in Rahman (2002), 14 EU countries in Bremberger et al, (2013), Sub-Saharan African countries in Arko et al (2014), 16 emerging countries in Boţoc and Pirtea (2014), 44 countries in Shinozaki and Uchida (2014), 6 countries (including Brazil from BRICS countries) in Benavides et al (2016) and more recently stock exchanges from 7 Asian countries in Nowak et al (2021). More importantly, to the authors' knowledge, dividend smoothing behavior has not been analysed for the BRICS countries in one study.…”

Influence of Profitability on Dividend Smoothing Among Listed Firms at Nairobi Securities Exchange, Kenya

“…Dividend policy has been an area of concern to academic researchers, financial analysts, shareholders, managers and firms for several decades now (Bremberger, Cambini, Gugler & Rondi, 2013). An important aspect of dividend policy is dividend smoothing which suggests that the firms adjust their dividends in arriving at a desired dividend payout ratio (Larkin, Leary & Michaely, 2017).…”