DETERMINANTS OF PAYOUT POLICY: AN ANALYSIS ON TURKISH MANUFACTURING FIRMS
1.1. RESEARCH SUBJECT
A dividend is the allocated amount of the company’s earnings to the stockholders. On the one hand, it is expected to be strictly related to the financial resource management and performance of maximizing shareholder wealth by deciding to pay, not to pay, to pay different from the previous years. On the other hand, the dividend irrelevance theory of Miller and Modigliani (1961) suggests that the value of the firm is irrelevant to the payout ratio, but it is related to the earning power and risk of its assets. In a perfect world, the value of the firm is not affected by the dividend distribution decisions (Gitman and Zutter, 2011). In the real world, due to the differences in taxation, information asymmetry, agency problems, transaction costs, this irrelevance argument is challenged. So, the researchers have developed dividend theories to explain why and when firms distribute or do not distribute dividends (Baker, 2009; Baker, Kılınçarslan and Arsal, 2018). After the seminal paper of Lintner (1956) lots of models have been developed to describe why firms should pay dividends, why they should not, the irrelevance of distributing or not distributing, when should they distribute it, which signals can be sent to the current and potential shareholders. The payout policy decision is also called the payout puzzle, due to these theories which sometimes contradict or support each other. Baker, et. al. (2018) list the dividend theories which may be important in explaining dividend decisions in the Turkish market. These theories are bird-in-the-hand theory, signaling theory, agency cost theory, tax-preference theory, tax clientele effect, catering theory, residual dividend theory, maturity (firm life cycle) theory, substitute model of dividends. In addition to these theories, there is a huge literature that tries to determine the factors that affect payout policy. The studies in this literature generally use firm-level and sometimes macro-level independent variables to identify the payout policy of the firms (see. Amidu and Abor, 2006; Al-Malkawi, 2007; Ahmed and Javid, 2008; Afza and Mirza, 2010; Gupta and Banga, 2010; Singhania and Gupta, 2012; Patra, Poshakwale and Ow-Yong, 2012; Kaźmierska-Jóźwiak, 2015; Jabbouri, 2016; Chang, Chang and Dutta, 2020; Yıldız, Gökbulut and Korkmaz, 2014; Kuzucu, 2015; Ersoy and Çetenak, 2015; Al-Najjar and Kılınçarslan, 2016; Abdioğlu, 2016; Erdaş, 2017; Özvar and Ersoy, 2017; Karaçayır and Sağlam, 2017; Kılınçarslan, 2018; Al-Najjar and Kılınçarslan, 2018).
1.2. RESEARCH PURPOSE AND IMPORTANCE
The dividend payout policy is one of the most important decisions that financial managers have to make. This study aims to reveal the factors affecting the dividend policy of the Turkish listed firms that operate in the manufacturing industry.
1.3. CONTRIBUTION of the ARTICLE to the LITERATURE
Exploring the determinants of the payout policy of the firms listed on BIST with recent data and trying to depict the effect of some chosen macro-level variables are the main contribution of the study to the literature.
2. DESIGN AND METHOD
2.1. DATA COLLECTION METHOD
The data of 168 firms listed on Borsa Istanbul between 2005 and 2017 is used. The Finnet Database and Word Bank Database are used to obtain the firm-level and macro-level variables, respectively. The firm-level variables are deflated by utilizing 2005 producer price index. And, minimum-maximum (out of firm age and macro-level variables) 1% values are clipped to avoid the effects of extreme values.
2.2. QUANTITATIVE / QUALITATIVE ANALYSIS
Random effect Tobit model is employed to determine the factors affecting the payout policy of the Turkish listed firms in the manufacturing industry, in accordance with the features of the dependent variable.
2.3. RESEARCH MODEL
The dependent variable of the research is the payout ratio. And, two models have been established. The first one only contains the firm-level independent variables. These are leverage, firm size, firm age, investment rate, cash flow rate, and growth of the sales. Additionally, the second model contains the growth of gross domestic product (GDP) and inflation rate.
3. FINDINGS AND DISCUSSION
The results show that an increase in leverage and investment rate reduces the dividend payout ratio, while an increase in size, age, and cash-flow ratio enhances it. Moreover, future growth opportunities (growth in sales) variable has a positive but insignificant effect on dividend payout ratio. Finally, a positive but insignificant effect of economic growth and negative but insignificant effect of inflation are observed.
4. CONCLUSION, RECOMMENDATION AND LIMITATIONS
In the payout literature, there are lots of studies that search the determiners of the factors and affect the payout decisions of the firm. On the one hand, although some studies reach similar findings, no consensus has been reached; on the other hand, no one should not expect one. The results vary according to the economic structure that the firms operate in, conjuncture, legal environment, tax regulations, etc. In this study, the positive effects of size, age, cash flow, and negative effects of leverage and investment are observed to the payout policy of the listed Turkish firms that operate in the manufacturing industry.