The determinants of dividend policy in Euronext 100

Abstract

The purpose of this paper is to examine the determinants of firms’ dividend policy, measured by dividend yield, using a sample of firms that belong to the Euronext 100 index for a period between 2007 and 2016. We used OLS regression with the dividend yield as the dependent variable and a number of explanatory variables at the firm level. Results show that the dividend yield in this paper is not associated with firms’ profitability, although both higher growth expectations by investors and larger size of firms negatively influence firms’ dividend yield. We found some evidence that leverage is indirectly related to more dividends. An important additional finding of this paper is that the level of leverage shapes dividend yields differently in the presence of stable payouts and stable dividends per share. Furthermore, the dividend yield reflects a positive valuation of investors if the growth in dividends is linked to the growth in earnings for firms with higher growth expectations, as a policy of a stable payout appears to be viewed by investors as not jeopardizing future growth. As dividend policy is a key part of Finance research, our study contributes to the theory twofold. First, by focusing on a specific niche not developed by literature, and second by examining the indirect effects of the traditional determinants of dividend policy.