IDEAS home Printed from https://ideas.repec.org/a/eee/glofin/v42y2019ics1044028317304659.html
   My bibliography  Save this article

Why companies do not pay cash dividends: The Turkish experience

Author

Listed:
  • Kent Baker, H.
  • Kilincarslan, Erhan

Abstract

This study uses a survey approach to examine the views of corporate managers of non-dividend-paying firms listed on the Borsa Istanbul (BIST) in order to identify the factors leading to the decision not to pay cash dividends in Turkey. Our survey results show that cash constraints, growth opportunities, low profitability and earnings, and the cost of raising external funds (debt) are the major reasons inducing BIST firms not to pay dividends. Additionally, non-dividend-paying firms consider their shareholder preferences when setting a policy of paying no cash dividends. Yet, they neither view taxes as an important factor for paying no dividends nor perceive that stock repurchases are substitutes for cash dividends. Statistical analysis using secondary data of publicly-traded BIST firms reveals whether the actual corporate actions are consistent with the managerial views revealed by our survey research. These tests show that growth opportunities and debt level have a negative effect on the dividend payment decisions of BIST firms. Also, large blockholders and the existence of multiple large shareholders reduce the likelihood and intensity of paying a cash dividend in the Turkish market. Overall, the evidence suggests that non-dividend-paying companies are likely to be smaller in size, relatively younger (in the earlier stage of their life cycle) with high-growth opportunities or with a low level of profitability (or even loss) and small (negative) earnings. By contrast, highly-profitable, mature and large-size corporations are more likely to pay cash dividends.

Suggested Citation

  • Kent Baker, H. & Kilincarslan, Erhan, 2019. "Why companies do not pay cash dividends: The Turkish experience," Global Finance Journal, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:glofin:v:42:y:2019:i:c:s1044028317304659
    DOI: 10.1016/j.gfj.2018.02.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1044028317304659
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.gfj.2018.02.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    4. Skinner, Douglas J., 2008. "The evolving relation between earnings, dividends, and stock repurchases," Journal of Financial Economics, Elsevier, vol. 87(3), pages 582-609, March.
    5. Baker, H. Kent & Singleton, J. Clay & Veit, E. Theodore, 2011. "Survey Research in Corporate Finance: Bridging the Gap between Theory and Practice," OUP Catalogue, Oxford University Press, number 9780195340372.
    6. Aivazian, Varouj & Booth, Laurence & Cleary, Sean, 2003. "Dividend policy and the organization of capital markets," Journal of Multinational Financial Management, Elsevier, vol. 13(2), pages 101-121, April.
    7. Glen, J.D. & Karmokolias, Y. & Miller, R.R. & Shah, S., 1995. "Devidend Policy and Behavior in Emerging Markets," Papers 26, World Bank - International Finance Corporation.
    8. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    9. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    10. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, vol. 57(4), pages 1649-1684, August.
    11. Burcin Yurtoglu, 2003. "Corporate Governance and Implications for Minority Shareholders in Turkey," Working Papers 2003/7, Turkish Economic Association.
    12. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    13. repec:bla:jfinan:v:59:y:2004:i:3:p:1125-1165 is not listed on IDEAS
    14. Kent Baker, H. & Kilincarslan, Erhan & Arsal, Alper Haktan, 2018. "Dividend policy in Turkey: Survey evidence from Borsa Istanbul firms," Global Finance Journal, Elsevier, vol. 35(C), pages 43-57.
    15. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    16. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    17. Jorge Farinha, 2003. "Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(9-10), pages 1173-1209.
    18. Baker, Malcolm & Wurgler, Jeffrey, 2004. "Appearing and disappearing dividends: The link to catering incentives," Journal of Financial Economics, Elsevier, vol. 73(2), pages 271-288, August.
    19. Gustavo Grullon & Roni Michaely & Bhaskaran Swaminathan, 2002. "Are Dividend Changes a Sign of Firm Maturity?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 387-424, July.
    20. H. Kent Baker & Bin Chang & Shantanu Dutta & Samir Saadi, 2012. "Why Firms Do Not Pay Dividends: The Canadian Experience," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 39(9-10), pages 1330-1356, November.
    21. Jorge Farinha, 2003. "Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(9‐10), pages 1173-1209, December.
    22. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
    23. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    24. Adaoglu, Cahit, 2000. "Instability in the dividend policy of the Istanbul Stock Exchange (ISE) corporations: evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 1(3), pages 252-270, November.
    25. Alpa Dhanani, 2005. "Corporate Dividend Policy:," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1625-1672.
    26. repec:bla:jfinan:v:53:y:1998:i:3:p:879-904 is not listed on IDEAS
    27. Michael S. Rozeff, 1982. "Growth, Beta And Agency Costs As Determinants Of Dividend Payout Ratios," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(3), pages 249-259, September.
    28. José-Miguel Gaspar & Massimo Massa & Pedro Matos & Rajdeep Patgiri & Zahid Rehman, 2013. "Payout Policy Choices and Shareholder Investment Horizons," Review of Finance, European Finance Association, vol. 17(1), pages 261-320.
    29. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    30. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    31. Varouj Aivazian & Laurence Booth & Sean Cleary, 2003. "Do Emerging Market Firms Follow Different Dividend Policies From U.S. Firms?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(3), pages 371-387, September.
    32. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    33. Lukas Setia‐Atmaja & George A. Tanewski & Michael Skully, 2009. "The Role of Dividends, Debt and Board Structure in the Governance of Family Controlled Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7‐8), pages 863-898, September.
    34. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    35. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    36. Stephen P. Ferris & Nilanjan Sen & Ho Pei Yui, 2006. "God Save the Queen and Her Dividends: Corporate Payouts in the United Kingdom," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1149-1174, May.
    37. Alpa Dhanani, 2005. "Corporate Dividend Policy: The Views of British Financial Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1625-1672, September.
    38. Hu, Aidong & Kumar, Praveen, 2004. "Managerial Entrenchment and Payout Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 759-790, December.
    39. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    40. John, Kose & Williams, Joseph, 1985. "Dividends, Dilution, and Taxes: A Signalling Equilibrium," Journal of Finance, American Finance Association, vol. 40(4), pages 1053-1070, September.
    41. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
    42. Basil Al-Najjar & Erhan Kilincarslan, 2017. "Corporate dividend decisions and dividend smoothing," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 13(3), pages 304-331, June.
    43. Lukas Setia‐Atmaja & George A. Tanewski & Michael Skully, 2009. "The Role of Dividends, Debt and Board Structure in the Governance of Family Controlled Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7‐8), pages 863-898, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aly Saad Mohamed Dawood & Mahmoud Otaify, 2021. "Target Capital Structure of Egyptian Listed Firms: Importance of Growth and Risk Factors," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(1), pages 158-173, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    2. Darakhshan Younis & Attiya Yasmin Javid, 2014. "Market Imperfections and Dividend Policy Decisions of Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:99, Pakistan Institute of Development Economics.
    3. Trojanowski, G., 2004. "Ownership structure as a mechanism of corporate governance," Other publications TiSEM 5dbc874d-d1d0-44a5-9717-8, Tilburg University, School of Economics and Management.
    4. James, Hui & Benson, Bradley W. & Wu, Chen (Ken), 2017. "Does CEO ownership affect payout policy? Evidence from using CEO scaled wealth-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 328-345.
    5. Erhan Kilincarslan, 2018. "The Factors Determining the Dividend Policy of Financial Firms Listed on the Borsa Istanbul," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 32(1), pages 75-109.
    6. Basharat Khan & Qiujun Zhao & Amjad Iqbal & Irfan Ullah & Shahab Aziz, 2022. "Internal Dynamics of Dividend Policy in East-Asia: A Comparative Study of Japan and South Korea," SAGE Open, , vol. 12(2), pages 21582440221, April.
    7. Schmid, Thomas & Ampenberger, Markus & Kaserer, Christoph & Achleitner, Ann-Kristin, 2010. "Controlling shareholders and payout policy: do founding families have a special 'taste for dividends'?," CEFS Working Paper Series 2010-01, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    8. Kent Baker, H. & Kilincarslan, Erhan & Arsal, Alper Haktan, 2018. "Dividend policy in Turkey: Survey evidence from Borsa Istanbul firms," Global Finance Journal, Elsevier, vol. 35(C), pages 43-57.
    9. Renneboog, L.D.R. & Trojanowski, G., 2005. "Control Structures and Payout Policy," Other publications TiSEM a82281ef-f247-479f-a0e3-1, Tilburg University, School of Economics and Management.
    10. Fairchild, Richard & Guney, Yilmaz & Thanatawee, Yordying, 2014. "Corporate dividend policy in Thailand: Theory and evidence," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 129-151.
    11. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.
    12. Fodil Adjaoud & Walid Ben-Amar, 2010. "Corporate Governance and Dividend Policy: Shareholders' Protection or Expropriation?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 648-667.
    13. Shumi Akhtar, 2018. "Dividend payout determinants for Australian Multinational and Domestic Corporations," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 11-55, March.
    14. Sheikh, Shahbaz, 2022. "CEO power and the likelihood of paying dividends: Effect of profitability and cash flow volatility," Journal of Corporate Finance, Elsevier, vol. 73(C).
    15. Mahboubeh Bahreini & Cahit Adaoglu, 2018. "Dividend payouts of travel and leisure companies in Western Europe," Tourism Economics, , vol. 24(7), pages 801-820, November.
    16. Hamdi Ben-Nasr, 2015. "Government Ownership and Dividend Policy: Evidence from Newly Privatised Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(5-6), pages 665-704, June.
    17. Nishant B. Labhane, 2019. "Dividend Policy Decisions in India: Standalone Versus Business Group-Affiliated Firms," Global Business Review, International Management Institute, vol. 20(1), pages 133-150, February.
    18. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
    19. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    20. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.

    More about this item

    Keywords

    Dividend policy; Cash dividends; Survey research; Borsa Istanbul; Turkey;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:glofin:v:42:y:2019:i:c:s1044028317304659. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620162 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.