The Economic Sentiment and Dividend Policy in Poland

Abstract

In previous research on determinants of company dividend-policy, a much higher significance was given to micro-economic factors describing the economic and financial situation of companies rather than to macro-economic factors. However, there is no analysis of the impact of economic sentiment on the dividend policy of companies. Moreover, companies do not operate in ‘a vacuum’. The economic situation in a certain country and even the global economic situation and its perception by entrepreneurs has a tremendous impact on their activities and decisions. To verify the hypothesis about the impact of economic sentiment on dividend policies of the companies listed on the Warsaw Stock Exchange in 1996–2009, logit pooled-regression models were applied. The dependent variable takes a value 1 if the company paid a cash dividend in year t and value 0 otherwise. As explanatory variables, we adopted the most common ones in this type of study, namely those describing the profitability, size, maturity, risk and investment opportunities as well as the dividend policy of the company in the year t – 1. Economic sentiment was measured using the Economic Sentiment Index, computed by the European Commission at monthly intervals. This allowed us to determine the period in which the changes in sentiment have the highest influence on dividend decisions. The estimated models allowed us to draw conclusions that apart from the economic and financial situation of a company in the year t – 1, dividend decisions made in year t are also affected by economic sentiment found in the Polish economy at the turn of the second quarter of year t. According to the Polish Code of Commercial Companies, it is understandable that the company should decide on the distribution of its profit within six months after the end of the business year. The research demonstrates, when making decisions, the boards of companies and shareholders take into account not only profits achieved in the previous year, but also the recent dividend and investment policy, and the current economic sentiment.