Keywords
How to Cite
Abstract
This paper investigates the main factors determining the dividend payout policy and the capital structure decision in the Kingdom of Saudi Arabia (KSA). The sample includes 91 non-financial firms listed on the KSA stock market (Tadawal Stock Exchange) for the period between 2012 and 2016. Two models are used mainly the Ordinary Least Square (OLS) for the capital structure decision and Logistic Regression (LR) for the dividend policy decision. OLS results show that the capital structure is positively affected by the firm size, but negatively affected by liquidity, tangible assets, and lagged dividends. However, other variables such as profitability, the current dividend payout ratio, growth opportunities, and life cycle are found to have no impact on the capital structure decision. Furthermore, LR results show that the significant determinants of dividend payout decision are profitability, growth opportunity, and lagged dividends. These results show that the capital structure and the dividend payout decisions are determined differently.
References
Acock, A. C. (2008). A gentle introduction to Stata. College Station, Texas: StataCorp LP.
Aggarwal, R., & Kyaw, N. (2010). Capital structure, dividend policy, and multinationality: Theory versus empirical evidence. International Review of Financial Analysis, 19 (2), 140-150.https://doi.org/10.1016/j.irfa.2010.01.001
Aivazian, V., Booth, L., & Cleary, S. (2003). Do emerging market firms follow different dividend policies from US firms. Journal of Financial Research, 26(3), 371-387. https://doi.org/10.1111/1475-6803.00064
Al-Ajmi, J., Abo Hussain, H.A., & Al-Saleh, N. (2009). Decisions on capital structure in a Zakat environment with prohibition of riba: The case of Saudi Arabia. Journal of Risk Finance, 10(5), 460-476. https://doi.org/10.1108/15265940911001376
Aljamal, S. (2018). The practice of transformational management and its role in achieving institutional excellence from the point of view of workers in the Directorates of Education in Hebron. International Journal of Business Ethics and Governance, 1(1), 64-90. https://doi.org/10.51325/ijbeg.v1i1.12
Al-Malkawi, H. (2007). Determinants of corporate dividend policy in Jordan: An application of the Tobit Model. Journal of Economics and Administrative Sciences, 23(2), 44-70.https://doi.org/10.1108/10264116200700007
Al-Najjar, B. (2009). Dividend behaviour and smoothing new evidence from Jordanian panel data. Studies in Economics and Finance, 26(3), 182- 197.https://doi.org/10.1108/10867370910974017
AlNajjar, B. (2011). The interrelationship between capital structure and dividend policy: Empirical evidence from Jordanian data. International Review of Applied Economics, 25(2), 209-224.https://doi.org/10.1080/02692171.2010.483464
Al-Najjar, B., & Hussainey, K. (2009). What drives firms' capital structure and dividend policy. Working paper, Middlesex University, London.
Al-Sakran, S. (2001). Leverage determinants in the absence of corporate tax system: The case of non- financial publicly traded corporations in Saudi Arabia. Managerial Finance, 27(10/11), 58 – 86. https://doi.org/10.1108/03074350110767583
Ambarish, R., John, K., & Williams, J. (1987). Efficient signalling with dividends and investments. The Journal of Finance, 42(2), 321-343. https://doi.org/10.1111/j.1540-6261.1987.tb02570.x
Amidu, M., & Abor, J. (2006). Determinants of dividend payout ratios in Ghana, Journal of Risk Finance, 7(2), 136-145. https://doi.org/10.1108/15265940610648580
Antoniou, A., Guney, Y., & Paudyal, K. (2008). The determinants of capital structure: Capital market-oriented versus bank-oriented institutions. Journal of Financial and Quantitative Analysis, 43(1), 59-92. https://doi.org/10.1017/S0022109000002751
Barclay, M., Holderness, C., & Sheehan, D. (2009). Dividends and corporate shareholders. Review of Financial Studies, 22(6), 2423-2455. https://doi.org/10.1093/rfs/hhn060
Barclay, M., Smith, C., & Watts, R. (1995). The determinants of corporate leverage and dividend policies. Journal of Applied Corporate Finance, 7(4), 4-19.https://doi.org/10.1111/j.1745-6622.1995.tb00259.x
Beck, T., & Levine, R. (2002). Stock markets, banks, and growth: Panel evidence (NBER Working Paper No. 9082). National Bureau of Economic Research.
Bennett, M., & Donnelly, R. (1993). The determinants of capital structure: Some UK evidence. The British Accounting Review, 25(1), 43-59. https://doi.org/10.1006/bare.1993.1005
Bevan, A., & Danbolt, J. (2002). Capital structure and its determinants in the United Kingdom-a decomposition analysis. Applied Financial Economics, 12(3), 159-170. https://doi.org/10.1080/09603100110090073
Bhaduri, S. (2002). Determinants of corporate borrowing: Some evidence from the Indian corporate structure. Journal of Economics and Finance, 26(2), 200-15.https://doi.org/10.1007/BF02755986
Bharath, S., Pasquariello, P., & Wu, W. (2009). Does asymmetric information drive capital structure decisions? Review of Financial Studies, 22, 3211-3243.https://doi.org/10.1093/rfs/hhn076
Bradley, M., Jarrell, G., & Kim, E. (1984). On the existence of an optimal capital structure: Theory and evidence. The Journal of Finance, 39(3), 44-67.https://doi.org/10.1111/j.1540-6261.1984.tb03680.x
Brav, A., Graham, J., Harvey, C., & Michaely, R. (2005). Pay-out policy in the 21st Century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004
Brockman, P., & Unlu, E. (2009). Dividend policy, creditor rights, and the agency costs of debt. Journal of Financial Economics, 92(2), 276-299. https://doi.org/10.1016/j.jfineco.2008.03.007
Caglayan, E., & Sak, N. (2010). The determinants of capital structure: Evidence from the Turkish banks. Journal of Money, Investment and Banking, 15, 57-65.
Cassar, G., & Holmes, S. (2003). Capital structure and financing of SMEs: Australian evidence. Accounting & Finance, 43(2), 123-47. https://doi.org/10.1111/1467-629X.t01-1-00085
Chadha, S., & Sharma, A. (2015). Determinants of capital structure: an empirical evaluation from India. Journal of Advances in Management Research, 12(1), 3-14. https://doi.org/10.1108/JAMR-08-2014-0051
Chang, R. & Rhee, S. (1990). The impact of personal taxes on corporate dividend policy and capital structure decisions. Financial Management, 19(2), 21-31. https://doi.org/10.2307/3665631
Chang, X., & Dasgupta, S. (2009). Target behavior and financing: How conclusive is the evidence. The Journal of Finance, 64(4), 1767-1796.https://doi.org/10.1111/j.1540-6261.2009.01479.x
Chaplinsky, S., & Niehaus, G. (1993). Do inside ownership and leverage share common determinants. Quarterly Journal of Business and Economics, 32, 51-65.
Chay, J., & Suh, J. (2009). Pay-out policy and cash-flow uncertainty. Journal of Financial Economics, 93(1), 88-107. https://doi.org/10.1016/j.jfineco.2008.12.001
Chen, C., & Steiner, T. (1999). Managerial ownership and agency conflicts: A nonlinear simultaneous equation analysis of managerial ownership, risk taking, debt policy, and dividend policy. Financial Review, 34, 119-36. https://doi.org/10.1111/j.1540-6288.1999.tb00448.x
Chen, J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341-1351.https://doi.org/10.1016/S0148-2963(03)00070-5
Cleary, S. (1999). The relationship between firm investment and financial status. The Journal of Finance, 54(2), 673-692. https://doi.org/10.1111/0022-1082.00121
Coulton, J., & Ruddock, C. (2011). Corporate pay-out policy in Australia and a test of the life-cycle theory. Accounting and Finance, 51(2), 381-407. https://doi.org/10.1111/j.1467-629X.2010.00356.x
Crutchley, C., Jensen, M., Jahera, J., & Raymond, J. (1999). Agency problems and the simultaneity of financial decision making: The role of institutional ownership. International Review of Financial Analysis, 8(2), 177-197.https://doi.org/10.1016/S1057-5219(99)00011-3
De Angelo, H., DeAngelo, L., & Stulz, R. (2006). Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial Economics, 81(2), 227-254. https://doi.org/10.1016/j.jfineco.2005.07.005
Degryse, H., De Goeij, P., & Kappert, P. (2012). The impact of firm and industry characteristics on small firms' capital structure. Small Business Economics, 38(4), 431- 447.https://doi.org/10.1007/s11187-010-9281-8
Denis, D., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62-82.https://doi.org/10.1016/j.jfineco.2007.06.006
Easterbrook, F. (1984). Two agency-cost explanations of dividends. American Economic Review, 74 (4), 650- 659.
Eckbo, B., & Verna, S. (1994). Managerial share ownership, voting power, and cash dividend policy. Journal of Corporate Finance, 1(1), 33-62.https://doi.org/10.1016/0929-1199(94)90009-4
Eije, H., & Megginson, W. (2008). Dividends and share repurchases in the European Union. Journal of Financial Economics, 89(2), 347- 374.https://doi.org/10.1016/j.jfineco.2007.11.002
Eldomiaty, T (2007). Determinants of corporate capital structure: evidence from an emerging economy. International Journal of Commerce and Management, 17(1/2), 25-43.
Fama, E., & French, K. (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay. Journal of Financial Economics, 60, 3-43.https://doi.org/10.1016/S0304-405X(01)00038-1
Ferreira, A., & Vilela, S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10, 295-319.https://doi.org/10.1111/j.1354-7798.2004.00251.x
Ferris, S., Sen, N., & Unlu, E. (2009). An international analysis of dividend payment behavior. Journal of Business Finance and Accounting, 36(3-4), 496-522. https://doi.org/10.1111/j.1468-5957.2009.02126.x
Flannery, M. & Rangan, K. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506.https://doi.org/10.1016/j.jfineco.2005.03.004
Frank, M., & Goyal, V. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67 (2), 217-248.https://doi.org/10.1016/S0304-405X(02)00252-0
Frank, M., & Goyal, V.K. (2008). Trade off and pecking order theories of debt. In Eckbo, E. (ed.), The handbook of empirical corporate finance (pp.135-202). Elsevier.
Friend, I., & Lang, L. (1988). An empirical test of the impact of managerial self-interest on Corporate capital structure. The Journal of Finance, 43, 271-281. https://doi.org/10.1111/j.1540-6261.1988.tb03938.x
Fuller, K., & Blau, B. (2010). Signalling, free cash flow and "no monotonic" dividends. Financial Review, 45(1), 21-56.https://doi.org/10.1111/j.1540-6288.2009.00236.x
Gaud, P., Jani, E., Hoesli, M., & Bender, A. (2005). The capital structure of Swiss companies: An empirical analysis using dynamic panel data. European Financial Management, 11(1), 51-69.https://doi.org/10.1111/j.1354-7798.2005.00275.x
Gonenc, H. (2003). Capital structure decisions under micro institutional settings: The case of Turkey. Journal of Emerging Market Finance, 2(1), 57-82.https://doi.org/10.1177/097265270300200103
Grullon, G., & Michaely, R. (2002). Dividends, share repurchases, and the substitution Hypothesis. The Journal of Finance, 62, 1649-1684.https://doi.org/10.1111/1540-6261.00474
Gugler, K., &Yurtoglu, B. (2003). Corporate governance and dividend pay-out policy in Germany. European Economic Review, 47(4), 731-58.https://doi.org/10.1016/S0014-2921(02)00291-X
Harris, M., & Raviv, A. (1990). Capital structure and the informational role of debt. The Journal of Finance, 45, 321-349.https://doi.org/10.1111/j.1540-6261.1990.tb03693.x
Ho, H. (2003). Dividend policies in Australia and Japan. International Advances in Economic Research, 9(2), 91-100.https://doi.org/10.1007/BF02295710
Hovakimian, A., Hovakimian, G., & Tehranian, H. (2004). Determinants of target capital structure: The case of dual debt and equity issues. Journal of Financial Economics, 71(3), 517-540.https://doi.org/10.1016/S0304-405X(03)00181-8
Huang, J., Shen, Y., & Sun, Q. (2010). Non-negotiable shares, controlling shareholders, and dividend payments in China. Journal of Corporate Finance, 17(1), 122-133.https://doi.org/10.1016/j.jcorpfin.2010.09.007
Huang, R. & Ritter, J. (2009). Testing theories of capital structure and estimating the speed of adjustment. Journal of Financial and Quantitative Analysis, 44(2), 237-271.https://doi.org/10.1017/S0022109009090152
Huang, S., & Song, F. (2006). The determinants of capital structure: Evidence from China. China Economic Review, 17, 14-36.https://doi.org/10.1016/j.chieco.2005.02.007
Huizinga, H., Laeven, L., & Nicodeme, G. (2008). Capital structure and international debt shifting. Journal of Financial Economics, 88(1), 80-108. https://doi.org/10.1016/j.jfineco.2007.05.006
Jensen, G., Solberg, A., Donald, P., & Zorn, T. (1992). Simultaneous determination of insider ownership, debt, and dividend policies. Journal of Financial and Quantitative Analysis, 2, 247-63.https://doi.org/10.2307/2331370
Jensen, M., & W. Meckling. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305-360.https://doi.org/10.1016/0304-405X(76)90026-X
Jensen, M. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323-329.
John, K., & Williams, J. (1985). Dividends, dilution, and taxes: A signaling equilibrium. The Journal of Finance, 40, 1053-70.https://doi.org/10.1111/j.1540-6261.1985.tb02363.x
Kania, L., & Bacon, W. (2005). What factors motivate the corporate dividend decisionAmerican Society of Business and Behavioral Sciences E-Journal, 1(1), 95-107.
Khan, M., & Bhatti, I. (2008). Development in Islamic banking: a financial risk-allocation approach. Journal of Risk Finance, 9(1), 40-51. https://doi.org/10.1108/15265940810842401
Koch, P., & Shenoy, C. (1999). The information content of dividend and capital structure Policies. Financial Management, 28, 16-36.https://doi.org/10.2307/3666301
Kraus, A., & Litzenberger, R. (1973). A state-preference model of optimal financial leverage. The Journal of Finance, 28(4), 911-922.https://doi.org/10.1111/j.1540-6261.1973.tb01415.x
Lang, L., & Litzenberger, R. (1989). Dividend announcements: Cash flow signaling vs. free cash flow hypothesis. Journal of Financial Economics, 24, 181-192.https://doi.org/10.1016/0304-405X(89)90077-9
Leary, M., & Roberts, M. (2005). Do firms rebalance their capital structures? The ournal of Finance, 60(6), 2575-2619.https://doi.org/10.1111/j.1540-6261.2005.00811.x
Lemmon, M., Roberts, M., & Zender, J. (2008). Back to the beginning: Persistence and the cross-section of corporate capital structure. The Journal of Finance, 63(4), 1575-1608.https://doi.org/10.1111/j.1540-6261.2008.01369.x
Li, K., & Zhao, X. (2008). Asymmetric information and dividend policy. Financial Management, 37(4), 673-694.https://doi.org/10.1111/j.1755-053X.2008.00030.x
Long, A., & Malitz, A. (1986). The investment financing nexus: Some empirical evidence. Midland Corporate Finance Journal, 3(2), 122-137.
Miller, M., & Rock. R. (1985). Dividend policy under asymmetric information. Journal of Finance, 40, 1031-51.https://doi.org/10.1111/j.1540-6261.1985.tb02362.x
Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. Economic Review, 48, 261-297.
Myers, S., & Majluf, N. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13,187-221.https://doi.org/10.1016/0304-405X(84)90023-0
Myers, S., & Rajan, R. (1998). The paradox of liquidity. Quarterly Journal of Economic, 113 (3), 733-771.https://doi.org/10.1162/003355398555739
Myers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economic, 5, 147- 175.https://doi.org/10.1016/0304-405X(77)90015-0
Myers, S. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575-92.https://doi.org/10.2307/2327916
Naceur, S., Goaied, M., & Belanes, A. (2006). On the determinants and dynamics of dividend policy. International Review of Finance, 6(1-2), 1-23.https://doi.org/10.1111/j.1468-2443.2007.00057.x
Ozkan, A. (2001). Determinants of capital structure and adjustment to long run target:Evidence from UK company panel data. Journal of Business Finance and Accounting, 28(1/2), 175-198.https://doi.org/10.1111/1468-5957.00370
Pandey, I., & Bhat, R. (2007). Dividend behavior of Indian companies under monetary policy restrictions. An investigation of the Managerial Finance, 33(1),14-25.https://doi.org/10.1108/03074350710715782
Pandey, I., & Chotigeat, T. (2004). Theories of capital structure: Evidence from an emerging market. Studies in Economics and Finance, 22(2), 1-19.https://doi.org/10.1108/eb028777
Patra, T., Poshakwale, S., & Yong, K.O. (2012). Determinants of corporate dividend policy in Greece. Applied Financial Economics, 33(13), 1079- 1087.https://doi.org/10.1080/09603107.2011.639734
Qureshi, M. (2010). Does pecking order theory explain leverage behavior in Pakistan. Applied Financial Economics, 19(17), 1365-1370.https://doi.org/10.1080/09603100902817592
Rajan, R., & Zingales, L. (1995). What do we know about capital structure Some evidence from international data. The Journal of Finance, 50(5), 1421-60.https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
Rehman, A. (2012). Determinants of dividend payout ratio: Evidence from Karachi Stock Exchange. Journal of Contemporary Issues in Business Research, 1(1), 20-27.
Renneboog, L., & Trojanowski, G. (2010). Patterns in pay-out policy and pay-out channel choice. Journal of Banking and Finance, 35(6), 1477-1490.https://doi.org/10.1016/j.jbankfin.2010.10.028
Ross, S. (1977). The determination of financial structure: The incentive signaling approach. Journal of Economics, 8(1), 23-41.https://doi.org/10.2307/3003485
Rozeff, M. (1982). Growth, beta and agency costs as determinants of dividend pay-out ratios. Journal of Financial Research, 5, 249-59.https://doi.org/10.1111/j.1475-6803.1982.tb00299.x
Saudi Arabian Monetary Agency (SAMA) (2015). 50th Annual Reports. https://www.sama.gov.sa/en-US/EconomicReports/AnnualReport/5600_R_Annual_En_50_Apx.pdf.
Stulz, R. M. (1990). Managerial discretion and optimal financial policies. Journal of Financial Economics, 26(3) 1-27.https://doi.org/10.1016/0304-405X(90)90011-N
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. Journal of Finance, 43(1), 1-19.https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
Viviani, J (2008). Capital structure determinants: An empirical study of French companies in the wine industry. International Journal of Wine Business Research, 20(2), 171 -194.https://doi.org/10.1108/17511060810883786
Voulgaris, F., Asteriou, D., & Agiomirgianakis, G. (2004). Size and determinants of capital structure in the Greek manufacturing sector. International Review of Applied Economics,18(2), 247-62.https://doi.org/10.1080/0269217042000186714
Wiwattanakantang, Y. (1999). An empirical study on the determinants of the capital structure of Thai firms. Pacific-Basin Finance Journal, 7(3-4), 371-403.https://doi.org/10.1016/S0927-538X(99)00007-4
Yu, D., & Aquino, R. (2009). Testing capital structure models on Philippine listed firms. Applied Economics, 41(15), 1973-1990 https://doi.org/10.1080/00036840601131805
Zameer, H., Rasool, S., Iqbal, S., & Arshad, U. (2013) Determinants of dividend policy: A case of banking sector in Pakistan. Middle-East Journal of Scientific Research, 18 (3), 410-424.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyright (c) 2018 Array