FIRM-LEVEL DETERMINANTS OF DIVIDEND PAYOUT POLICY: A CROSS –COUNTRY ANALYSIS OF EUROPEAN LISTED FIRMS

Abstract

This study examines the impact of firm-level determinants, i.e., firm size, cash flow, profitability, liquidity, lagged dividends, leverage, investment and growth opportunities, and business risk, on dividend payout policy of non-financial European firms. The study sample comprises 2,131 European listed manufacturing firms over the period 2009–2023. Moreover, to determine how the dividend payout policy is affected by various firm-specific characteristics, a high-dimensional fixed effects (HDFE) regression model is employed, alongside a binary logit model to identify which factors affect a firm’s dividend-paying decisions. Consequently, the results show positive effects of historical dividends, profitability, operating cash flow, and liquidity on payout policy, as well as on the likelihood of paying dividends. The negative coefficients on size and leverage, on the other hand, indicate their negative association with dividend payouts. Furthermore, the findings reveal that the likelihood of dividends initiation is positively associated with investment and growth opportunities. However, they were not strong enough to pass the robustness test in the dividend-to-assets ratio analysis with firm fixed effects. In addition, this paper presents new empirical evidence on the impact of firm-specific attributes on dividend payout policy across European countries. Likewise, it contributes new insights into the dividend policy of non-financial publicly traded firms, thus providing practical application for policy makers, corporate managers, investors, and minority shareholders. However, numerous prior research has concentrated at the country level within the EU member states to investigate the diverse determinants of the dividend policy. In contrast, this study exclusively examines the role of firm-level factors, separately from macro-level determinants, in dividend payout strategy by using a large firm-level panel dataset spanning the recent years and a high-dimensional fixed effects (HDFE) estimator.