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Why do Firms Change Their Dividend Policy?

Author

Listed:
  • Ijaz Ali

    (Fahad Bin Sultan University Tabuk, Saudi Arabia,)

  • Ali Gohar

    (Fahad Bin Sultan University Tabuk, Saudi Arabia,)

  • Omar Meharzi

    (University of Grenoble, France.)

Abstract

Prior literature has largely documented managers' preference of sticking to their dividend policy. This perceived inflexibility of managers makes a dividend policy switch an important milestone in a firm's life. Blau and Fuller (2008) state that existing theories do not help understand why some firms never pay dividends, while others consistently pay them. This paper examines the factors that motivate managers to change their long term dividend policy. By employing univariate and multivariate tests and propensity score matching method, the authors provide empirical evidence consistent with the life cycle theory of dividends and Litner's proposition, and inconsistent with the signaling theory of dividends. Unlike previous studies, by investigating the characteristics of dividend policy switchers, this study examines factors affecting firms' long term dividend policy. In addition, by analyzing both positive and negative switchers, this study helps to determine whether the same factors are responsible for dividend abandonments and initiations.

Suggested Citation

  • Ijaz Ali & Ali Gohar & Omar Meharzi, 2017. "Why do Firms Change Their Dividend Policy?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 411-422.
    • Handle: RePEc:eco:journ1:2017-03-54
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dividend Policy; Signaling Theory of Dividends; Life Cycle Theory of Dividends;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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