Impacts of Leverage and Return on Investment (ROI) on Dividends : A Study on North American and Global Non-Financial Business Firms

This is an empirical study based on a large-scale database of North American and Global organizations. The is the first study that has included more than 70,000 and 1,00,000 observations from North American and Global firms respectively to measure the impacts of financial leverage and return on investment (ROI) on firms’ dividend. Previous literature did not examine the relationships together and did not compare them between North American and rest of the world (global) firms. This is more comprehensive and robust study that included all non-financial business organization from Compustat. The study applied a bunch of regression models (OLS, 2SLS) to produce and analyze the outcomes. The study also examined the robustness of the results by applying the linear probability, logit, probit and tobit models. The study also explores that North American firms use higher average leverage than global organizations. In contrast, North American firms have lower return on investment (ROI) than the Global firms. As a result, Global firms pay higher dividends than the North American firms. Regression analysis shows that leverage has negative impacts on dividend for North American firms while it is positive for global firms. However, ROI has positive effects on dividend for both North American and Global business firms. The results remain significant when control variables are included in different regression models. This study suggests further study to measure the relationships between developed and developing countries, regional trading blocks and currency unions