Discussion Paper

No. 2019-41 | July 02, 2019
Dividend payout ratio follows a Tweedie distribution: international evidence

Abstract

Dividend policy is still a largely discussed issue in corporate finance literature. One of the main indicators used in analysing the dividend policy is the dividend payout ratio. Using a database consisting of 12,085 companies operating in 73 countries, for the period 2008–2014, the authors found that the dividend payout ratio follows a Tweedie distribution, and not a normal one. This distribution is stable over time for the entire analysed period. In addition, it describes the case of almost all the countries included in the sample. Thus, a better estimation of the probability that dividend payout ratio is lower or higher than a benchmark can be provided. Also, an analysis of dividend policy, distinctly considering payer versus non-payer companies, can offer additional important information for both practitioners and academics.

Data Set

JEL Classification:

G35, C01, C51, C55

Assessment

  • Downloads: 418

Links

Cite As

Victor Dragotă, Daniel Traian Pele, and Hanaan Yaseen (2019). Dividend payout ratio follows a Tweedie distribution: international evidence. Economics Discussion Papers, No 2019-41, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-41


Comments and Questions


Anonymous - Referee Report 1
August 29, 2019 - 12:12

In my opinion paper “Dividend Payout Ratio Follows a Tweedie Distribution: International Evidence” describes very important and difficult problem. Subject is well known in literature but still interesting for readers. The authors analyze the relationship between the dividend payout ratio and financial ratios in assumption that the dividend payout ...[more]

... ratio distribution follows a Tweedie distribution. Authors use very interesting methodology (data and statistical method) and sufficient to proof papers hypothesis. The results of testing depend highly on financial indicator selected for analysis. There is very good reference to other papers, but without detailed treatment of selection procedure and literature overview supporting this procedure.

I recommend to:
- add the argument to financial indicators selection and reasoning for their representativeness in this case,
- explain why (what's new) your methodology is much better and / or different from the methodology used in the literature,
- more clearly, explain and emphasize the contribution to science and hypotheses,
- conclusion should be extended. (Limitation e.g. problem with accounting standards and tax law in different countries and sectors, what is advantages and disadvantages of this analysis). Finally the conclusion section should summarize your research and optionally provide guidance for the future research

Generally, I recommend publishing this article. Of course, my comments are only my opinion and do not affect the high value of this research.


Victor Dragota - Reply to Referee Report 1
September 03, 2019 - 19:24

We wish to thank for the useful suggestions provided by the anonymous referee. We hope that we will improve the quality of our paper, taking into account these suggestions.
Indeed, the results of testing highly depend on the financial indicator selected for analysis. In our paper, we are concerned ...[more]

... about dividend payout ratio (DPR). The main reason for choosing this indicator is its informative power. It is the indicator used most in the financial literature describing dividend policy. In the second draft of our paper, (1) we will insist more on the importance of dividend payout ratio for describing dividend policy (a more sounded argumentation for the selection of dividend payout ratio and its representativeness) and (2) we will mention - as a limitation - that the results are valid only for dividend payout ratio.
We will include more details regarding the treatment of selection procedure and literature overview supporting this procedure.
Also, in the revised version we will update the methodology in order to show the novelty/originality.
We have mentioned in the introduction of our paper that, using a better fit for the distribution (the Tweedie one), a better estimation of the probability that the event to occur (e.g., DPR to be lower or higher than a benchmark) can be provided. Also, an analysis of dividend policy, distinctly considering payer versus non-payer companies, can offer additional important information for practitioners and academics. In the second draft of our paper we will insist more (and clearer) on the contribution of the paper to science and hypothesis.
We agree that the conclusions should be extended, according to the suggestions of the first referee. We will consider all these issues in the second draft of our paper. Accounting rules are different from country to country (Chui 2002; Dragotă et al. 2018) and from sector to sector. Fiscal systems are also different and they can have an impact on financial decisions (Chui 2002; Dragotă et al. 2018), including dividend policy (Fidrmuc and Jacob 2010). We will insist more on the advantages and disadvantages of the analysis. Also, conclusions will be extended to summarize better our research and to include some future directions for our study.

Victor Dragotă
Daniel Traian Pele
Hanaan Yaseen

References:
Chui, A. C. W.; Lloyd. A. E.; Kwok, C. C. Y. (2002): The Determination of Capital Structure: Is National Culture a Missing Piece to the Puzzle? Journal of International Business Studies, 33(1): 99-127.
Dragotă I.M., Dragotă V., Curmei-Semenescu A., Pele D.T. (2018): Religion and Capital Structure: Some international evidences. Acta Oeconomica 68 (3): 415-442.
Fidrmuc J., Jacob M. (2010): Culture, Agency Cost and Dividends. Journal of Comparative Economics 38: 321-339. doi: 10.1016/j.jce.2010.04.002.


Dragota Victor - Final version
October 17, 2019 - 11:38

We wish to thank for the useful suggestions provided by the anonymous referee. We hope that we have improved the quality of our paper, taking into account these suggestions.
Indeed, the results of testing highly depend on the financial indicator selected for analysis. In our paper, we are concerned ...[more]

... about dividend payout ratio (DPR). The main reason for choosing this indicator is its informative power: it explains exact the portion from net earnings paid to shareholders as dividends. DPR is also the most used indicator in the financial literature describing dividend policy. In the second draft of our paper:
(1) we have insisted more on the importance of dividend payout ratio for describing dividend policy (a more sounded argumentation for the selection of dividend payout ratio and its representativeness). Thus, we have included some more relevant references (e.g., Holder et al 1998, Lamont 1998, Lettau and Ludvinson 2001, Short et al. 2002, Cincotti et al. 2010, Ye et al. 2019), which use dividend payout ratio in their analysis. Sections 1 and 2 were improved, for considering this suggestion.
(2) we have mentioned - as a limitation - that the results are valid only for dividend payout ratio (see the conclusions).
We have substantially modified the section presenting the methodology. We have included more details regarding the treatment of selection procedure and literature overview supporting this procedure. Section 3 benefited very much from this suggestion. In this context, we have added some references (e.g., Anderson and Darling 1954, Stephens 1974, Scholz and Stephens 1987, Jäntschi and Bolboacă 2018), Also, we have moved some issues related to the properties of Tweedie distribution from “Methodology” section to “Results” one.
We have mentioned in the introduction of our paper that, using a better fit for the distribution (the Tweedie one), a better estimation of the probability that the event to occur (e.g., DPR to be lower or higher than a benchmark) can be provided. Also, an analysis of dividend policy, distinctly considering payer versus non-payer companies, can offer additional important information for practitioners and academics. In the second draft of our paper, we have insisted more (and clearer) on the contribution of the paper to science and hypothesis.
We have extended the conclusions, according to the suggestions of the first referee. Accounting rules are different from country to country (Chui et al., Dragotă et al. 2018) and from sector to sector (Short et al. 2002). Fiscal systems are also different and they can have an impact on financial decisions (Chui et al. 2002; Dragotă et al. 2018), including dividend policy (Fidrmuc and Jacob 2010, Short et al. 2002). These issues can have an impact on earnings (La Porta et al. 2000), and, from here, on dividend payout ratio. We have insisted more on the advantages and disadvantages of the analysis. Also, conclusions were extended to summarize better our research and to include some future directions for our study.
Moreover, we have added some references and we have made some very minor styling, formatting and typing corrections.
References:
Chui, A. C. W.; Lloyd. A. E.; Kwok, C. C. Y. (2002): The Determination of Capital Structure: Is National Culture a Missing Piece to the Puzzle? Journal of International Business Studies, 33(1): 99-127.
Anderson, T.W., Darling, D.A. A. (1954). Test of Goodness-of-Fit. Journal of American Statistical Association, 49, 765–769. URL http://www.hep.caltech.edu/~fcp/statistics/hypothesisTest/PoissonConsistency/AndersonDarling1954.pdf
Cincotti, S., Raberto, M., Teglio, A. (2010): Credit Money and Macroeconomic Instability in the Agent-based Model and Simulator Eurace. Economics: The Open-Access, Open-Assessment E-Journal, 4. doi:10.5018/economics-ejournal.ja.2010-26.
Dragotă I.M., Dragotă V., Curmei-Semenescu A., Pele D.T. (2018): Religion and Capital Structure: Some international evidences. Acta Oeconomica 68 (3): 415-442.
Fidrmuc J., Jacob M. (2010): Culture, Agency Cost and Dividends. Journal of Comparative Economics 38: 321-339. doi: 10.1016/j.jce.2010.04.002.
Holder, M., Langrehr, Frederick W., Hexter, L. (1998). Dividend Policy Determinants: An Investigation of the Influences of Stakeholder Theory. Financial Management, 27 (3): 73-82. https://www.jstor.org/stable/3666276
Jäntschi, L., Bolboacă S.D. (2018). Computation of Probability Associated with Anderson–Darling Statistic, Mathematics — Open Access Journal, 6, 88 URL https://www.mdpi.com/2227-7390/6/6/88/htm
Lamont, O. (1998): Earnings and expected returns. Journal of Finance 53 (5): 1563-1587. doi: 10.1111/0022-1082.00065.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W. (2000). Agency Problems and Dividend Policies around the World. Journal of Finance, 55, 1, 1-33. URL https://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00199
Lettau, M., Ludvinson, S. (2001): Consumption, aggregate wealth, and expected stock returns. Journal of Finance 56 (3): 815-849. doi: 10.1111/0022-1082.00347.
Scholz, F.W., Stephens, M.A. (1987). K-Sample Anderson–Darling Tests, Journal of the American Statistical Association, 82, 399, 918-924. URL https://amstat.tandfonline.com/doi/abs/10.1080/01621459.1987.10478517?tab=permissions&scroll=top#.XZSy6UYzY2w
Short, H., Zhang, H., Keasey, K. (2002): The link between dividend policy and institutional ownership. Journal of Corporate Finance 8 (2): 105-122. https://doi.org/10.1016/S0929-1199(01)00030-X.
Stephens, M. A. (1974). EDF Statistics for Goodness of Fit and Some Comparisons, Journal of the American Statistical Association, 69, pp. 730-737. URL https://www.jstor.org/stable/2286009?seq=1#page_scan_tab_contents
Ye, D., Deng, J., Liu, Y., Szewczyk, S., Chen, X. (2019). Does board gender diversity increase dividend payouts? Analysis of global evidence. Journal of Corporate Finance, 58: 1-26. https://doi.org/10.1016/j.jcorpfin.2019.04.002.