On the Determinants and Dynamics of Dividend Policy

The authors study the dividend policy of 48 firms listed on the Tunisian Stock Exchange during 1996-2002 period. The study tests whether managers of Tunisian listed firms smooth their dividends or not. Beside, the study outlines the main determinants that may drive the dividend policy of Tunisian quoted firms. To answer the first question, we use Lintner's model in a dynamic setting. The results clearly demonstrate that Tunisian firms rely on both current earnings and past dividends to fix their dividend payment. However, the study shows that dividends tend to be more sensitive to current earnings than prior dividends. To find out the determinants of dividend policy, dynamic panel regressions have been performed. First, profitable firms with more stable earnings can afford larger free cash flows and thus, pay larger dividends. Furthermore, they distribute larger dividends whenever they are growing fast. However, neither the ownership concentration nor the financial leverage seems to have any impact on dividend policy in Tunisia. Besides, the liquidity of stock market and size negatively impacts the dividend payment. The results are somewhat robust to different specifications