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Determinant Factors of Dividend Policy in Firm Listed in Tehran Stock Exchange (TSE) 27
Dependent variable in this model is the cash dividend ratio which assessed in two ways. First
this variable was calculated by dividing cash earnings per share to the earning per share which is used
in this model. Then, in the form of a logistic regression, this variable was ambiguously investigated by
probability function as follows (1 for the firms which pay the dividends and 0 for the firms which dont
pay the dividends.
In this research, financial leverage, systematic risks and firms size variables considered as
controlling variables and non active members of board of directors ratio, free cash flow, and earning
opportunities variables considered as a substitution for agency costs.
4. Population and Statistical Sample
The statistical population of the study includes all accepted firms in stock exchange in the time period
between 1380 and1387. Among the firms in statistical population we selected the ones which had the
following characteristics:
1. Accepted in stock exchange before 2001.
2. The end of their financial year is March 29
th
of each year and within the investigated time
period, their financial year doesnt change.
3. Their data is from the available software.
5. Examining Hypotheses and Analyzing Research Findings
Descriptive statistics of the research variables are presented in table 1 and results of the test of
normality of dependent variable distribution (Kolmogorov- Smirnov Test) presented in table 2.
Table 1: Descriptive statics
Variables N Mean Std.Deviation Median
OUTSIDE. DRCT 536 0.7317 0.19460 0.8000
CFA 536 0.318060 0.122577 0.7269574
FCF 536 0.177631 2.2031422 -0.0200000
TANG 536 0.2512 0.24935 0.1710
BETA 536 0. 2097 1.63722 0.1800
SIZE 536 5.6741 0.83578 5.5600
PTBV 536 3.654 4.9722 2.065
FL 536 0. 5000 1.36607 0.1361
CHS 104 45.158173 20.6127430 49.70000
D
it
536 0.717030 0.4057320 0.787722
Table 2: Kolomogrov- Smironov Test
Dependent Variable N Sig Kolomogrov-Smironov_Z
D
it
536 0.125 1.178
Based on above table the significance level is 0.125 which is more than %5.Therefore, null
hypothesis isnt rejected and data has a normal distribution.
Table 3: Model Summary
Model
R
R Square Durbin- Watson Sig
1 0.759 0.576 0.000
2 0.851 0.724 0.000
3 0.877 0.770 0.000
28 Javad Moradi, Hashem Valipour and Seyedeh Sara Mousavi
Table 3: Model Summary - continued
4 0.889 0.890 0.000
5 0.907 0.822 0.000
6 0.912 0.832 0.000
7 *0.917 0.840 0.938 0.000
As we can see in table 3, the used model is significant in 0.05 error level and in final model
business risk, debt level, free cash flow, non active members of board of directors' ratio, the ownership
percent of board of directors members, fix assets ratio, and earning variables will enter respectively.
The %84 predicting ability of the model (R
2
coefficient) shows that the independent variables which
are used in optimal final model have the ability to describe %84 of changes in dependent variables. The
statistical output related to the significance of variables coefficients are presented in table 4. As you
can see in the table, the first, second, third, fourth, fifth, eighth and ninth research hypotheses are
confirmed with %5 error level.
Table 4: Coefficients
Model Std.Error
Unstandardized
Coefficients
Standardized
Coefficients t VIF Sig
BETA
Constant 0.140 0.961 6.860 0.000
BETA 0.021 -0.041 -0.131 -1.917 1.140 0.0058
FL 0. 015 -0.126 -0.404 -8.183 1.154 0.000
FCF 0.019 0.108 0.263 5.652 1.174 0.000
OUTSIDE.DRCT 0.030 -0.087 -0.156 -2.891 1.148 0.005
CHS 0.001 0.003 0.121 2.487 1.487 0.015
TANG 0.137 -0.316 -0.128 2.314 1.193 0.023
CFA 0.027 0.062 0.128 2.284 1.120 0.024
VIF coefficient related to the entering variables to the final model indicates that there is no
significant change in the coefficient compared to one and there is no liner relation among the entering
dependent variables in final model. Considering the fact that firm's size and growth opportunity dont
enter the final model, the sixth and seventh hypotheses are rejected with %5 error level which means
that theres no significant relationship among firm size, growth opportunity, and cash earnings ratio.
Therefore, the final model is like this:
CFA TANG
CHS DRCT OUTSIDE FCF FL BETA
D it
062 / 0 316 / 0
003 / 0 . 078 / 0 108 / 0 126 / 0 041 / 0 61 / 9
+
+ + =
(BETA): Beta for the firm
(FL): Borrowing ratio
(OUTSIDE.DRCTR): The number of outside directors on bords
(FCF): Free cash flow per share
(TANG): Fixed assets ratio
(CFA): Cash flow/Total assets
(CHS): Closely held shares
In the next part, the logistic model were administrated with ambiguous dependent variable (if
they pay the dividends during the time period, it is 1, if not, it is 0). Table five includes x
2
test which
shows the similarity between observed cases and expected ones.
Table 5: Hosmer Test
Step Negelkerke R square
2
K
Sig
1 0.747 1.910 0.895
Determinant Factors of Dividend Policy in Firm Listed in Tehran Stock Exchange (TSE) 29
Table 6: Variables in the Equation
OUTSIDE.DRCT Wald df Sig
FCF -0.2600 23.510 1 0.000
CFA -0.001 0.000 1 0.111
TANG -1.050 3.200 1 0.036
BETA -5.500 25.300 1 0.000
SIZE -0.990 12.800 1 0.000
FL -0.120 0.070 1 0.600
PTBV 0.680 7.350 1 0.005
CHS -0.178 6.390 1 0.12
Constant 0.617 0.087 1 0.542
267.787 0.020 1 0.890
Table six indicates the entering variables into the model and the result of Wald test.
Considering the significance level of each variable, firm size and ownership percent of board of
directors members dont enter the model because of their significance level which is 0.600 and 0.542
respectively. So the final model was predicted as below and as it can be seen in Table 5, the predicting
ability of the final model is estimated about %47 (Nagelkerke determining coefficient).
( ) 2 / 600 0 / 001 1 / 050 5 / 500 0 / 990 0 / 680 0 / 178
1
p
Ln OUTSIDE FCF CFA TANG BETA FL MB
p
= +
6. Discussions and Conclusion
Generally, the results show that we can predict the firms' cash dividends to an acceptable level by using
this study variables. In following parts research findings are discussed.
a. There is a negative and significant relationship between non active members of board of
directors ratio and dividends pay ratio.
The results show that there is a negative and significant relationship between non active
members of board of directors ratio and dividends pay ratio. Therefore, when the firms employ more
non active managers, they pay fewer dividends. This findings compromise with the substitution theory
and indicate that firms with weak corporate governance need to make credit for themselves by paying
dividends which means that paying dividends are considered as a substitution of managerial duties
performance of non active members of board of directors. So, for attracting more external resources
one firm should seek credit by paying dividends or making suitable situation for corporate governance.
Findings of the present study are similar to Najar and Hosseinis (2009) research in this regard.
b. Theres a positive and significant relationship between earnings and dividends pay ratio.
The signing theory of dividend policy includes the result which says that the profitable firms
have the tendency to pay more dividends. On the other hand, in profitable firms as the returns from
owners investments are pretty high, so the owners want to invest the cash flows in the firm again and
the future cash earnings increase which the observed results from logistic model confirm. In this
regard, the hieratical theory suggests that the firms' financing their own investment opportunities with
special priority. In the first step, they can do this by saving earning in the firm, and in the second step,
financing with borrowing and finally with owners. If the cost of debt and publishing the shares take
into consideration, the firms with few earnings also dont have the tendency to pay dividends. These
findings are consistent with findings Najar and Hossinie (2009).
c. There is appositive and significant relationship between free cash flows (liquidity) and
Dividend pay ratio.
Generally, free cash flow is a scale which can present a better view of firms' financial flexibility
to the creditors and stock holders. From their viewpoint, a firm with high free cash flows has an
optimal condition because this firm can use this cash for administrating an operation, repaying the
30 Javad Moradi, Hashem Valipour and Seyedeh Sara Mousavi
debts, distributing the dividend and developing the enterprise. Results indicate that free cash flow has a
direct, significant relation with dividend pay ratio.
Najar and Hossinie (2009) conclude that there is no relationship between liquidity and dividend
pay ratio.
d. There is a negative and significant relationship between assets' structure and dividend pay ratio.
When tangible assets in a firm increase, debts and short-term borrowings increase, as well. On
the other hand, the firms which burden higher investing costs by investing on fix assets need more
financing and on the bases of hierarchal order financing theory, they prefer to distribute less cash
dividends and financing more with inside resources. The outcomes in this field confirm Najar and
Hossinie (2009) findings.
e. There is a negative and significant relationship between business risk and dividend pay ratio.
Risk earnings, may block the business unit ability to provide return which stock holders
expected. Furthermore, the higher the business risk, the higher the probability of bankruptcy is and
therefore, the possibility and probability of firm's dividend pay reduces. Najar and Hossinie
(2009)show that there is a negative relationship between dividend pay and business risks which
consistent with this research finding.
f. There is a negative and significant relationship between debt level and dividend pay ratio.
Firms with lower debt level in assets' structure and having more collateral assets have higher
financial comfort, therefore, they can distribute more incomes among stock holders. Najar and
Hossinie (2009) have achieved similar results. On the other hand, results fromlogistic model show that
the more leverage the firm has, the higher the possibility of cash dividend pay is and managers persist
strongly on paying cash dividend which is in line with the conception of agency text.
g. There is a significant relationship between ownership percent of the board of directors'
members and dividend pay ratio.
The higher the concentration of ownership in the board of directors members, the more the
dividends because in this way, the earnings are going into managers' account and the dividend pay
opportunities are low if considerable amount pay as the profits to the people outside the firms. In the
second condition, managers compensate their own loss with other profits and fees which show that
there is a positive relationship between ownership percent of board of directors' members and dividend
pay ratio. Najar and Hossinie (2009) show a negative relationship between these two variables.
Firm size and earning opportunity variables have no significant relationship with cash dividend
ratio and dont enter the final model.
7. Implications and Suggestions for Further Study
Considering the research results, stock holders who are looking for the cash dividends gain should pay
attention to the firm cash dividend return in previous years and the level of profit growth in making
their own investments decisions.
Firm's managers also must watch their own decisions about dividend policy, because if a firm's
manager want to act against the firms special characteristics' in the previous cash return, risk position,
investment opportunities and the things like that and try to change the firms dividend policy, then it
may encounter with the negative market reaction. So presenting complete information by firms'
managers is necessary for delighting the public and stock holders' mind which can prevent the market
negative reaction.
Financial institutions can also use the results of this research, because in granting their financial
facilities document, they limited the firms' dividend policy to some special conditions. Therefore,
knowing the firms dividend policy can be useful in optimizing the work method and the way of
conducting these limitations. On the other hand, financial analysts' can consider the way of dividing
share earning which investigated in the study for estimating firms' stock market values to recognize a
basket of suitable stocks.
Determinant Factors of Dividend Policy in Firm Listed in Tehran Stock Exchange (TSE) 31
For future studies the following suggestions can be taking into consideration:
1. Investigation of the influence of other factors of corporate governance such as the stock
ownership percent of institutional investors, and stock ownership percent of private
investors on the dividend policy.
2. Investigation of the impact of other factors of corporate governance such as manager's
independence, the number of them an agers' employment years, managers' income and
board of directors structure on the dividends policy.
3. In this study an eight year time period is investigated, we suggest that if you have access
to the necessary information its better to examine, longer time periods to have more
reliable results.
4. Present study can be done for different industries separately and yielded results compared.
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