Dividend Policy and Smoothening Behavior of the Southeast Asian Countries Including Japan

Abstract

This study examines the dividend policy and smoothening behavior of major Southeast Asian countries including Japan. The study uses firm specific variables including corporate governance measures as independent variables. The results indicated financial leverage, return on equity, asset tangibility, Tobin Q, market concentration (HHI), and life cycle are the main determinants of dividend policy for the Southeast Asian region. In addition to this, the corporate governance measures (board composition, audit quality, and ownership structure) are also found as significant determinants of dividend policy of the selected economies. However, the results for cash flow and business risk are found to be contradictory due to their insignificant impacts on dividend policy in some economies. Thus, the study concludes that most determinants of dividend policy are similar within the regions. The study also used probit model in order to find probable factors that may influence the dividend policy and the results show similarity between determinants of dividend policy and probability factors that influence dividend policy. The probable factors are the same as the determinants of dividend policy. In addition to this, the study also tested the application of Lintner model, and the results clearly depicted that last year dividend as well as the current year earnings are the main factors that impact dividend policy of the firms within the region. More so, focusing on the speed of adjustment and target payout ratio of the firms, the study unties that firms have moderate speed of adjustment, and management is reluctant to cut dividends. Lastly, the target payout ratios of the firms also suggest that firms do have moderate target payout ratio except for Singapore with target payout ratio almost equal to 1. Conclusively, the study reveals that the determinants of dividend policy for the Southeast Asian countries are quite similar, firms do follow smooth dividend policy, and management is reluctant to cut dividends in the long run.