Ownership structure and dividend policy: application of Lintner's dividend model in Sri Lanka

Abstract

This paper investigates the effect of ownership structure on the dividend policy of 77 Sri Lankan firms listed in the Colombo Stock Exchange over the period 2006-2014. The Lintner's full adjustment model and the partial adjustment model are used to examine the potential relationship between ownership structure and the dividend policy. We find that the ownership identity matters in determining the dividends according to Lintner's dividend model in Sri Lanka. Compared to the full adjustment model, the partial adjustment model is superior in explaining the variation in dividends with variables associated in different ownership structures. There is a negative association between institutional, managerial ownership structures and the dividend policy and a significant positive association between concentrated ownership structure and the dividend policy. In addition, the dividend in the preceding year is highly significant in explaining the succeeding year's dividend, thus confirming the stability of the dividend policy.