Academic journal article UTMS Journal of Economics

The Determinants of the Dividend Size in Croatia

Academic journal article UTMS Journal of Economics

The Determinants of the Dividend Size in Croatia

Article excerpt


Previous researches identified certain micro-level characteristics of the company as important determinants of dividend level company choose. However, significant differences were noticed in the sensitivity of dividend size on same factors among different countries. This paper empirically examines determinants of the dividend size of Croatian companies. The results show on average significant influence of profitability and debt level on the size of the dividends. Influence of size of the company and stability of profitability/earnings on the dividend size is not statistically confirmed. The reason for high sensitivity of dividend size on the profitability and debt level can be found in high financial constraints under which Croatian companies operate.

Keywords: dividends, dividend policy, factors.

Jel Classification: G35 - Payout Policy

(ProQuest: ... denotes formulae omitted.)


Significant reason for dividends still remaining one of the most important unsolved puzzles in finance (Brealy and Mayers 2002) is complexity of factors that influence it. The most influential empirical researches regarding dividends conducted by using the data from countries with most developed financial markets. They have identified certain firm-level factors such as profitability, debt level, ownership structure etc. that influence dividend policy in most of the analyzed companies. However, when research was extended to other countries with different structure of financial system, level of investor protection and other characteristics it was seen that the same factors do not have nor the same importance nor the same direction of the influence on the dividend level.

The aim of this paper is to investigate firm-level factors that influence dividend level of the biggest Croatian companies, to analyze the results and to explain the reasons behind them. Based on previous similar researches done in other countries we expect high influence of profitability and debt level on the dividend policy. Next to these two determinants our aim is to determine the influence of other micro factors such as stability of earnings and size of the company on the dividend level.

The paper is organized in following way: after introduction, second part provides overview of previous empirical works on micro level determinants of the dividend policy. Third part presents data used in empirical investigation. Fourth part presents results of empirical investigation and fifth part concludes.


For a long time both theoretical and empirical research of dividends was understandably mostly focused on the most developed countries. The earliest and the most influential empirical investigations have been made in the United States of America. Among them important place takes the study of Lintner (1956) in which he showed that companies set long-run dividend level according to the amount of positive net present value projects. His work was followed by other empirical investigations that used either results of surveys of managers or secondary data from financial statements of companies. On the basis of them as most important micro-level factors that influence dividend policy are isolated profitability, stability of earnings, growth, debt level, ownership concentration and size. However, researches of the influence of these factors in different countries showed significant differences (Aivazian, Booth, and Cleary 2003) not just in their importance but even in the direction of their connection with the dividend level.

As one of the key factor influencing level of dividends all researches identified profitability of a company. The reason behind it is obvious. In order to pay out dividends the company has to supply enough funds. Although the company can use debt to finance dividends the funds needed to pay out dividend should generally come as a result of the surplus of cash flow generated from the company's business operations. …

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