Factors related to dividend policy of Thai listed firms

Abstract

Impacts of dividend policy on stock price have long been argued for the past decades. Life-cycle theory and signaling theory have been criticized in explaining decision to pay dividend. The purposes of this study included (i) to investigate the announcement effects of cash dividend on stock returns (ii) to explore factors determining decision on dividend payout policy, and (iii) to examine how the life-cycle theory of dividend examined the dividend policy. Abnormal returns of dividend announcement were determined by using event study technique. Panel data of listed companies during 2005-2010 were observed and estimated using random effects Logit models and random effects Tobit to analyze factors determining decision to pay dividend. According to sixty days event window, event study results revealed significant abnormal returns of the stock during and after cash dividend announcement. This finding confirms signaling theory that listed company can send positive signal of the company through the dividend policy. Investors reacted positively to dividend announcement while negatively respond to negative signal, like dividend omissions. Additionally, estimated results of random effects Logit models indicated significant impacts of retain earnings on decision to pay dividend. This findings support the lifecycle theory that the firm with more retains earning should pay its dividend. Furthermore, the significant impacts of previous year dividend policy also indicated that dividend policy had been used as signaling message to investors. Paid dividend companies last year were more likely to pay dividend this year since decision not to pay dividend would cause negative abnormal returns.