Determinants of Dividend Policy: A Panel Data Analysis for Turkish Listed Firms

Abstract

Dividend policy of firms is one of the most controversial issues of theoretical finance. This paper aims to investigate the firm-level factors influencing the dividend decisions of firms from an emerging market. We examined eight-year panel data for the period from 2006 to 2013 from the Turkish stock market (Borsa Istanbul). The results show that financial leverage, size, growth rate, age, profitability, ownership structure and P/E ratio are statistically significant. The relationship of leverage, growth rate, profitability and family control with dividends is negative, whereas the relationship of size, age and P/E ratio is positive. Therefore, firms with higher debt ratios / growth rates / higher earnings are likely to retain more of their earnings. The empirical evidence from the Turkish stock market shows that the maturity hypothesis proposed by Grullon, Michaely and Swaminathan (2002) best explains the dividend behaviors of firms. Accordingly, as a firm matures, the availability of profitable projects reduces and earnings decrease. As the investment opportunities reduce, the need for resources decreases and the firm increases dividend payouts to shareholders.