Determinants of Dividend Policy: The Case of the Casablanca Stock Exchange

Abstract

This article investigates the determinants of dividend policy on the Casablanca stock exchange. The variables tested were based on the main theories of dividend policy, and the fixed effect model was used to test panel data over a period of 16 years from 2003 to 2018. The eight independent variables tested were profitability, firm size, retained earnings, firm age, leverage, growth opportunities, price to earnings (P/E) and a dummy variable introduced for financial companies. To corroborate the results, two proxies were used to test the dependent variable: dividend yield and payout ratio. The results led to the identification of three significant determinants of dividend policy, which are firm age, growth opportunities and firm size. The negative correlation between the variables of firm size and firm age with dividend policy is explained by signaling theory. On the other hand, the negative correlation between growth opportunities and dividend payments is predicted by different theories, such as agency theory, financial flexibility theory and life cycle theory. This study provides insights for investors, analysts and researchers into dividend policy determinants on the Casablanca stock exchange based on firms’ characteristic variables.