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The determinants of the dividend puzzle : evidence from the S&P500

Oosterik, Rens (2022) The determinants of the dividend puzzle : evidence from the S&P500.

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Abstract:What determines the level of dividends paid by firms? Black (1976) already stated, "The closer we look at the dividend picture, the more it looks like a puzzle, with pieces that just don't fit together". This study examines the determinants of dividend policy for non-financial S&P500 firms between 2016-2019. It is one of the few studies with a wide variety of variables that test many different theories: the agency problem theory, the signalling theory, the pecking order theory and the life-cycle theory. The results contribute to solving the dividend puzzle by examining the level of dividend payment. The research method used in the study is multiple (OLS) regression, as well as robustness checks and WLS regression to validate the results. After controlling for the variables tangibility (TANG) and different industries (INDUSTRY), a number of determinants of dividend payout levels were found. The results present that dividend-paying S&P500 firms that pay more dividends have higher free cash flow, are more profitable, have more growth/investment opportunities and score higher on CSR. In addition, it is interesting to note that ownership concentration (OWN²) affects the level of dividend payout, showing a concave (∩-shaped) relationship. Finally, no significant relationships are found for the variables leverage, age and size. A limitation is that some robustness checks show different results that differ from the main model. Second, adding multiple variables may lower the predictive power and reduce the focus on one specific variable. Finally, these results add to the scarce U.S. literature on dividend policy and dividend payment levels in recent years. In addition, this study is useful for investors who examine dividend payout levels when constructing their portfolios.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics
Programme:Business Administration MSc (60644)
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