Academic journal article Business: Theory and Practice

Ownership Type Influence on Dividend Payments in CEE Countries

Academic journal article Business: Theory and Practice

Ownership Type Influence on Dividend Payments in CEE Countries

Article excerpt

Introduction

The famous Black's (1976) quote "The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just do not fit together" precisely addresses the comprehensive issue of the dividend policies. The problems of the dividend payouts, its determinants, its stability are widely discussed in the financial management resulting in the numerous empirical and theoretical papers. Signaling theory, which gains importance within the modern capital markets, can provide certain hints for the dividend puzzle: the dividend announcements almost always are followed by the firm's price increase, while the announcements about the dividend reduction have a significant negative reaction on the stock price (Koch, Shenoy 1999; Lee, Xiao 2003; Guttman et al. 2007; Hussainey, Aal-Eisa 2009; Fairchild 2010). When the dividends are being initiated or raised the management signals about the quality of earnings, about earnings stability and sustainability, which is the main concern of the firm's shareholders. Financial managers deciding on the dividend increase focus on maintaining stable or increasing earnings aiming to sustain smooth dividend stream (Lintner 1956; Skinner 2004; Brav et al. 2005; DeAngelo et al. 2006).

However, the research is mainly done on the sample of the listed companies in the developed markets and the topic of dividend seems to be under-researched in the developing countries. While the emerging markets dividend paying companies are becoming good choice for the investment portfolio due to their ability to provide higher capital growth on top of the attractive dividend yields. They also provide certain hedging during the crisis time as the emerging market stock companies to a great extent are exposed to the downturn as indicated by Bareikiene and Sudzius (2011) in Lithuania.

Besides, according to Manu Vandenbulck (2012), at the moment the dividend yield of the emerging market stocks is 3%, which is higher than in some major developed markets such as the US at 2% dividend yield and Japan at 2.6%. Moreover, emerging market companies become more willing to attract more investors by increasing share of profits paid out -35% currently vs. 10% in 2000. Therefore, the present research focuses on the emerging CEE countries also because their offered products are becoming accessible and integrated in the global context (Gudonyte, Tvaronaviciene 2012).

The decision to pay dividends is a part of company's corporate policy and according to the authors' previous study, it was found out that the balance sheet strength, operating profitability, industry factor as well as the firm's size impose a significant influence on the payout ratios (Bistrova, Lace 2012). However, these factors were not able to fully explain the changes in the dividend payments.

Stein and Ginevicius (2010) analyzed the profit sharing problem depending on the business collaboration form and found out that the factors that mostly influence the profit sharing are the input balance of every member, which is expressed as the aggregate of profit (financial benefit) and the technology (intangible benefit).

The authors of the present article believe that a significant impact on the payout ratios might be also exerted by the ownership type and origin, which can be especially vital in the underdeveloped emerging markets.

The aim of the present research is to find out what type and origin of the largest shareholder are associated with the highest dividend payouts.

When speculating about the hypotheses of the study, the authors came to the conclusion that in the emerging markets the highest dividend payments might be stimulated in case of financial investors, which tend to be reluctant to invest in future developments and are eager to receive high dividends now. Moreover, foreign shareholders most probably would consider investments in the emerging market companies more willingly in case of high dividend opportunity as an additional risk hedging option. …

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